OTTAWA - Prime Minister Stephen Harper says if President Barack Obama and U.S. lawmakers can't find a solution to the looming fiscal cliff it could spark other unforeseen economic woes.
Harper told a Canada-United States business forum in Ottawa on Monday that he hopes "reasonable people" can come to a solution now that the election south of the border is over.
"To the extent I hear some people talking about a bungee cord, I think that kind of talk is foolish," Harper said.
"If you go over a cliff, you can't be sure what will happen next. Like we saw with the collapse of Lehman Brothers, how a single major event can trigger a series of events that's very hard to pull back from."
The fiscal cliff refers to the combination of imminent spending cuts and tax increases due to take effect Jan. 1 that could push the fragile U.S. economy back into recession, dragging Canada's along with it.
Harper also lauded American entrepreneurship, saying it would be the driving force that would one day allow the world's largest economy to overcome its current economic problems.
But not, he added, without some government support.
"This is still at its heart, the most entrepreneurial, dynamic, developed economy in the world," Harper said.
"My sense is that if it could be given any kind of stability, not just for the next two months, but for the next few years that the energy of the business community in the United States is just looking for the opportunity to get growth going again."
Harper said he doesn't think the U.S. economy can reach the heights of a decade ago, but it can improve over the situation of the last few years of the economic downturn.
Harper's optimism was reflected in the North American stock markets, which rallied Monday amid hope that divided U.S. politicians can come together and agree on a budget deal.
Concerns began to ease Friday after Obama met with congressional leaders. Republicans and Democrats emerged striking a noticeably more conciliatory tone.
"I am confident we can get our fiscal situation dealt with," Obama added Sunday.
Added Harper: "I know most of these people. They should be able to come to some kind of agreement of what to do about Jan. 1."
Harper was speaking in a question-and-answer session in front of an audience of hundreds of business leaders from both countries. His questioner was Scotty Greenwood, a senior adviser with the organization hosting the event, the Canadian-American Business Council.
Greenwood offhandedly asked Harper what his biggest complaint is about the U.S.
Harper's response echoed that of virtually every country that does business in Washington: the U.S. doesn't pay enough attention to Canada.
Harper made clear that he understands the U.S. has obligations that extend across the globe.
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The Deficit Has Grown Mostly Because Of The Recession
The deficit has ballooned not because of specific spending measures, but <a href="http://research.stlouisfed.org/fred2/graph/?s[id]=FYFSD" target="_hplink">because of the recession</a>. <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit more than doubled</a> between 2008 and 2009, as the economy was in free fall, since laid-off workers paid less in taxes and needed more benefits. The deficit then shrank in 2010 and 2011.
The Stimulus Cost Much Less Than Bush's Wars, Tax Cuts
Republicans frequently have blamed <a href="http://projects.nytimes.com/44th_president/stimulus" target="_hplink">the $787 billion stimulus</a> for the national debt, but, when all government spending is taken into account, the stimulus frankly wasn't that big. In contrast, <a href="http://www.huffingtonpost.com/2011/06/29/cost-of-war-iraq-afghanistan_n_887084.html" target="_hplink">the U.S. will have spent nearly $4 trillion</a> on wars in the Middle East by the time those conflicts end, according to a recent report by Brown University. <a href="http://www.washingtonpost.com/blogs/fact-checker/post/revisiting-the-cost-of-the-bush-tax-cuts/2011/05/09/AFxTFtbG_blog.html" target="_hplink">The Bush tax cuts have cost nearly $1.3 trillion</a> over 10 years.
The Deficit Grew Under George W. Bush
When George W. Bush took office, <a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">the federal government was running a surplus</a> of $86 billion. When he left, that had turned into a $642 billion deficit.
The Deficit Is Shrinking
<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">Last year's federal budget deficit</a> was 12 percent lower than in 2009, according to the Office of Management and Budget.<a href="http://www.whitehouse.gov/omb/budget/Historicals" target="_hplink">The deficit is projected to shrink</a> even more over the next several years.
Investors Are Paying Us To Borrow Money
<a href="http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield" target="_hplink">The interest rate on 10-year Treasury bonds</a> is <em>negative</em>, according to the Treasury Department. Investors are even paying us for 30-year Treasury bonds, when adjusted for inflation.
Investors Are Not Running Away
<a href="http://www.businessinsider.com/niall-ferguson-has-been-wrong-on-economics-2012-8" target="_hplink">Conservative commentators</a> have been warning for years that investors will run away from Treasury bonds because of the national debt. So far it's not happening. <a href="http://www.huffingtonpost.com/2012/05/30/treasury-yield-record-low_n_1555975.html" target="_hplink">Interest rates on Treasury bonds</a> continue to hover at historic lows.
Health Care Reform Reduces The Deficit
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The U.S. Is Borrowing Less From China
<a href="http://krugman.blogs.nytimes.com/2012/08/30/fear-of-china-syndrome/" target="_hplink">The U.S. government is borrowing much less from foreign countries</a> than before the recession, according to government data cited by Paul Krugman. That is because the U.S. private sector is financing our bigger deficits.
We Spend A Lot On Defense
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We Spend A Lot On Health Care
<a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=1258" target="_hplink">Health insurance, including Medicare and Medicaid, constituted 21 percent</a> of federal spending last year. In contrast, education constituted 2 percent of federal spending. Meanwhile, <a href="http://www.miamiherald.com/2012/08/19/2956609/middle-aged-blues-over-paul-ryans.html" target="_hplink">Mitt Romney and Paul Ryan have promised not to change Medicare</a> for Americans age 55 and older.
Republicans May Want Large Deficits For Now
<a href="http://www.businessinsider.com/corporate-taxes-deficits-and-labor-vs-capital-during-reagans-first-term-2012-7" target="_hplink">The federal budget deficit ballooned</a> under Ronald Reagan, and that may be just the way Republicans like it. <a href="http://www.forbes.com/2010/05/06/tax-cuts-republicans-starve-the-beast-columnists-bruce-bartlett.html" target="_hplink">Some Republican thinkers</a> have proposed <a href="http://www.nytimes.com/2010/02/22/opinion/22krugman.html" target="_hplink">"starving the beast"</a>: that is, cutting taxes in order to use larger deficits to justify spending cuts later. Since Republicans ultimately want lower taxes and a smaller government, what better way is there to cut spending than to make it look urgent and necessary?