Many eggs, many baskets

by Michael Power

FROM THE MM&D JULY/AUGUST 2011 PRINT EDITION: I have a close friend who, smart though he is, isn’t particularly good with his money. Years ago he got into trouble with credit card debt. Perhaps you’ve heard of similar situations: he had about four credit cards and began using one credit card to pay the balance on another. He would rotate his payments in this fashion, switching from one card to the next as they became due.

My friend had the sense eventually to consolidate his payments and is now debt free. I wonder if the US government will eventually show the same sense with that country’s debt.

On August 1, with only a few hours left before the US national debt would hit its limit, emergency legislation was passed, letting the government borrow more, effectively raising the $14.3-trillion debt ceiling. Along with this increased borrowing cap, the legislation promises budget cuts of more than $2 trillion over the next decade.

Crisis averted, right? Well, rather than solving the US debt drama, the move paves the way for further spending in the future. None of these cuts is binding. As well, they’re set to take place over the next decade. I suspect the US will continue to ignore its spending, borrow money, and keep taxes insanely low. But still, I doubt this recent drama will lead to much fallout  that hits supply chains, at least in the short term.

But I do see some cause for concern. Part of that concern is, frankly, no one seems sure what the fallout will eventually be; economic uncertainty is rarely helpful. Also, inflation looms in the US since the country is now printing money like mad due to the crisis. Falling confidence in the US dollar means ours has been soaring above parity recently. This will likely all drive down demand for goods produced north of the border. The US remains our principal export market, but I’d like Canada to continue to focus on other economies like the Asia Pacific and Brazil. Not every economic egg needs to be in a basket held by our southern neighbours.