MONTREAL - Bank of Canada governor Mark Carney says the so-called fiscal cliff looming over U.S. lawmakers is the most imminent threat facing the Canadian economy.
Carney, speaking in Montreal, said the potential fallout from political gridlock on a solution that would extend U.S. tax cuts and spending beyond the new year is a "great risk" and "almost immediate risk" to the domestic economy.
"It could well have implications for policy here in Canada, but the good news is that Canadian authorities have flexibility as both the minister of finance and I outlined."
Finance Minister Jim Flaherty and Carney both pledged Wednesday to take action to support the economy if a shock from the U.S., or Europe, threatened to once again plunge the country into recession.
Discussion surrounding the all-important fiscal precipice has heightened since Tuesday's U.S. election resulted in a second term for Democratic President Barack Obama, as well as a Republican-dominated lower house.
The ideological split among lawmakers already threatened to wreak havoc on the American economy last year when the president and Congress could not agree on a deal to raise the country's debt ceiling, which resulted in a debt rating downgrade and a market sell off.
Economists fear that unless the two sides co-operate on a new budget arrangement soon, about $600 billion in tax cuts and spending will end abruptly, robbing the U.S. economy of about four percentage points in growth.
Flaherty has said that would push the U.S. into recession quickly and the Canadian economy would be sure to follow.
He added Wednesday that all his colleagues at the G20 meeting of leading economic powers last weekend in Mexico expressed concern about how U.S. policy-makers would deal with the threat.
Economists view avoiding the fiscal cliff as a no-brainer since its repercussions are so severe, but both sides have been unwilling to move off core positions — Democrats insist on tax hikes for the rich, which the Republicans have so far refused to consider.
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Paul Ryan: QE2 Risks Inflation
Back in 2010, Republican Vice Presidential candidate Paul Ryan explained that the Federal Reserves plan to purchase $600 billion worth of securities -- known as QE2 -- was little more than "sugar-high economics" that <a href="http://www.bloomberg.com/news/2012-08-14/romney-ryan-see-fed-qe-as-inflation-risk-amid-low-prices.html" target="_hplink">risked rising inflation and weakening the dollar</a>. But instead the opposite took place. According to Bloomberg: <blockquote>"Since that prediction by Ryan, who has been chosen by presumptive Republican presidential nominee Mitt Romney to be his running mate, the dollar has risen against major currencies and inflation has stayed below the Fed's goal of 2 percent."</blockquote>
Christina Romer: Unemployment Will Remain Below 8%
In early January of 2009, Christina Romer, economic adviser to then President-elect Barack Obama, made a prediction: massive government stimulus on the order that would eventually be passed by Congress would keep unemployment below 8 percent, reports <a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/01/10/AR2009011001999.html" target="_hplink"><em>The Washington Post</em></a>. Without it, unemployment could reach as high as 9 percent. In July 2012, unemployment edged up to <a href="www.bls.gov" target="_hplink">8.3 percent</a>. It has not gone below 8 percent since <a href="http://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=country:US&fdim_y=seasonality:S&dl=en&hl=en&q=us+unemployment+rate#!ctype=l&strail=false&bcs=d&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:S&scale_y=lin&ind_y=false&rdim=country&idim=country:US&ifdim=country&tstart=984805200000&tend=1337227200000&hl=en_US&dl=en&ind=false" target="_hplink">January 2009</a>.
Jim Cramer: Obamacare Will Topple The Stock Market
On <a href="http://mediamatters.org/blog/2010/03/22/dow-finishes-up-following-health-care-vote-pagi/162074" target="_hplink">March 18, 2010</a>, Jim Kramer stated on Larry Kudlow's program that Obamacare would tank the stock market. The reform package was, in his words, "the single greatest impediment to the stock market going higher." On March 23 of that year, according to <a href="http://www.cbsnews.com/8301-503544_162-20000981-503544.html" target="_hplink">CBS News</a>, President Obama signed health care reform into law. Following Yahoo's tracking of the Dow Jones, the market on April 1 2010 was at 10,927. On August 17, over two years later, the Dow Jones Industrial Average was pegged at <a href="http://data.cnbc.com/quotes/.DJIA" target="_hplink">13,264</a>. Granted, the market could still take a nose dive. But odds are it won't be because of health care reform.
Michelle Bachmann: Obama Taking 'The Final Leap To Socialism'
In a radio interview Minnesota Congresswoman Michelle Bachmann gave with Bill Bennet in March of 2009, the Minnesotan claimed that Obama's policies were representing the "final leap into socialism," <a href="http://thinkprogress.org/politics/2009/03/05/36590/buchmann-thwart-obama/" target="_hplink">Think Progress</a> reported. But alas, while Bachmann's sensational claim may have gotten her into the spotlight, the government has been engaged in selling its stake in the industries that it had to temporarily prop up. General Motors, an automaker that the U.S. government had to prop up with emergency capital, bought back all preferred shares held by the U.S. Treasury as of December 2010, reports <a href="http://dealbook.nytimes.com/2010/12/16/g-m-buys-back-2-1-billion-preferred-shares/" target="_hplink"><em>The New York Times</em></a>. Wall Street's largest banks that have frequently brought about wrath from liberals such as <a href="http://www.nytimes.com/2011/07/18/opinion/18krugman.html?_r=1&ref=paulkrugman" target="_hplink">Paul Krugman,</a> like Citi, Goldman Sachs and JP Morgan, are still privately run.
Glenn Beck: U.S. Will Go Through 'Great Depression Times 100' (Or Hyperinflation)
In early 2010, then-Fox News commentator Glenn Beck said that the U.S. was likely in for a "Great Depression Times 100," reports <a href="http://mediamatters.org/mmtv/201001050049" target="_hplink">Media Matters</a>, going on to say that the country would experience a period of hyperinflation. Unemployment during the Great Depression peaked at around 25 percent, according to an article published by <a href="http://www.bls.gov/opub/cwc/cm20030124ar02p1.htm" target="_hplink">the Bureau of Labor Statistics</a>. But even at the worst moments of the Great Recession, unemployment only reached slightly above 10 percent. Presently, it is <a href="http://www.huffingtonpost.com/2012/08/03/unemployment-rate-jobs-report-bls_n_1736843.html" target="_hplink">at 8.3 percent</a>, according to the Bureau of Labor Statistics. With inflation estimated to remain stagnant at 1.5 percent through 2012, the nightmare warnings of hyperinflation expounded by Beck as well as by renowned "economist" <a href="http://www.cobdencentre.org/2010/10/peter-schiff-dollar-hyperinflation-is-coming-unless-policy-direction-is-rapidly-changed/" target="_hplink">Peter Schiff</a> appears to be just that. A nightmare.
Rick Santelli: 'Stagflation Is Almost A Certainty'
In October of 2009, CNBC analyst and Tea Party founder Rick Santelli told said on the show Fast Money that he believed <a href="http://220.127.116.11/id/15840232?video=1287468464&play=1" target="_hplink">"stagflation is almost a certainty."</a> In other words Santelli was predicting that America would go through a period of high inflation and high unemployment. The only question he had was when. In November of that year, <a href="http://www.bls.gov/cpi/cpid0910.pdf" target="_hplink">the Bureau of Labor Statistics</a> revealed that between October 2008 and October 2009, prices rose by 1.7 percent not including food and gas. This made, at the time, Santelli's claim even bolder. Even though unemployment is still high -- almost three years later -- inflation has risen far below the Federal Reserves 2 percent annual target, <a href="http://www.bloomberg.com/news/2012-08-14/romney-ryan-see-fed-qe-as-inflation-risk-amid-low-prices.html" target="_hplink">Bloomberg reports.</a>
Rush Limbaugh: Obamacare Will Leave 250 Million People Uninsured
Among the many predictions conservative radio host Rush Limbaugh has made over the years, the one he made on March 8, 2010 was not one of his best. On his daily radio show <em>The Rush Limbaugh Show</em>, Limbaugh announced to his listeners that healthcare reform, which would be signed into law later that month, would end up leaving 250 million Americans uninsured, <a href="http://mediamatters.org/mmtv/201003080025" target="_hplink">Media Matters</a> reported. As of June 2012, 49.9 million Americans do not have health insurance, <a href="http://www.cnn.com/2012/06/27/politics/btn-health-care/index.html" target="_hplink">CNN estimated</a>.
Mitt Romney: U.S. WIll Default If We Raise Debt Ceiling
In the <a href="http://transcripts.cnn.com/TRANSCRIPTS/1106/13/se.02.html" target="_hplink">June 13, 2011 Republican Presidential Debate</a>, Mitt Romney, when asked about the consequences of not raising the debt limit answered the moderator's question with a question. "Well, what happens if we continue to spend time and time again, year and year again more money than we take in?" As Asher Smith pointed out on <a href="http://www.huffingtonpost.com/asher-smith/republican-debate-economy_b_876899.html" target="_hplink"><em>The Huffington Post</em></a>, this can only mean that the U.S. will eventually be unable to pay off its obligations and, as a result, default. Bit as of August 2012, close to one year after the debt ceiling was raised, the U.S. still hasn't defaulted.
Bill Gross: End Of QE2 Would Cause Bond Yields To Go 'Much Higher'
In March of 2011, PIMCO Co-Founder Bill Gross predicted an imminent spike in treasury bond yields following the end of the Federal Reserve's Quantitative Easing program, <a href="http://finance.fortune.cnn.com/2011/03/02/gross-warns-qe2s-end-could-sink-markets/" target="_hplink"><em>Fortune's</em> Colin Barr reported</a>. Bond yields, Gross told reporters, were likely to go "higher maybe even much higher" at the end of June 2011 when QE2 ended. The 10-year treasury bond yield has since fallen. Since the 2011, 10-year bond rates have hovered between 2.5 and 1.5 percent, according to <a href="http://www.bloomberg.com/quote/USGG10YR:IND/chart" target="_hplink">Bloomberg</a>.
Joe Biden: US Out Of Recession In 18 Months (Feb. '09)
In February of 2009, Vice President Joe Biden predicted that the federal stimulus package being implemented by Barack Obama's administration would "literally drop kick us out of this recession," <a href="http://thehill.com/blogs/on-the-money/801-economy/114661-gop-reminds-biden-of-missed-prediction-on-the-recovery" target="_hplink"><em>The Hill</em></a> reported. "This [stimulus] is about getting this out and spent in 18 months to create 3.5 million jobs." Technically, the recession ended during the third fiscal quarter of 2009, <a href="http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm" target="_hplink">according to the Bureau of Economic Analysis</a>. But with unemployment hovering around over 8 percent for the last three years, some economists are no longer talking about calling the current economic period a recovery. Brad DeLong, an economist with UC Berkley, told readers on his blog in 2011 that we're now in the midst of a <a href="http://delong.typepad.com/sdj/2011/06/the-little-depression.html" target="_hplink">"Little Depression" instead.</a>
Peter Schiff: Inflation At 20 Percent By 2009
Economist Peter Schiff stated that the Federal Reserves monetary policies would lead to 20 percent inflation within one year. The statement, made in October 2008 on <a href="http://www.youtube.com/watch?v=jB9fuIvksLw" target="_hplink">Glenn Beck's former CNN program</a>, was proven wrong. During 2009, <a href="http://www.tradingeconomics.com/united-states/inflation-cpi" target="_hplink">the U.S. actually experience deflation.</a>
Ron Paul: Beware Of Runaway Inflation
Congressman Ron Paul believed that runaway inflation was "just horrendous" in May 2011, he said during an appearance on <a href="http://www.ronpaul.com/2009-05-12/ron-paul-warns-against-runaway-inflation/" target="_hplink">Fox Business News</a>. <a href="http://www.tradingeconomics.com/united-states/inflation-cpi" target="_hplink">When Congressman Paul made that statement</a>, inflation was pegged at 3.2 percent and, after peaking at 3.9 percent that October, inflation has steadily fallen to 1.4 percent in July 2012.