By Graeme MacKay, The Hamilton Spectator, Thursday November 8, 2012
U.S. budget crisis could push Canada into a recession
Budget monster lurks behind victorious Barack Obama
Finance Minister Jim Flaherty is urging U.S. politicians to get back to work quickly on resolving their budget crisis now that the election is over, warning that failure would plunge both America and Canada into recession.
The minister has voiced concern before about the so-called “fiscal cliff,” but the re-election of both Democrat President Barack Obama and a right-wing Republican House on Tuesday has led to new fears of the risk becoming reality.
“Of course we’re worried because it would mean, were the entire fiscal cliff risk to come to reality … (it) would put the U.S. economy into a recession quite quickly and the Canadian economy would follow shortly thereafter, and would have a significant effect on the global economy,” Flaherty told reporters Wednesday.
Flaherty said 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.
North American markets also seemed to take the threat seriously. The Dow Jones Industrials plunged more than 300 points at one point before recovering slightly. There was also a significant, but more modest, sell-off in Toronto.
Flaherty’s comments came amid warnings that gridlock in Washington could prevent a deal to extend about $600 billion in tax cuts and spending programs beyond Dec. 31. That would represent about a four-percentage-point hit to an economy only growing at 2 per cent.
Economists have considered the issue a no-brainer, but Obama and the Democrats have insisted that taxes on the rich rise as part of the deal, something Republicans have balked at the past two years (Source: Hamilton Spectator)