Deficit fears overblown

Deficit fears overblown
Posted on January 3, 2017 | Larry Kazdan | Written on December 28, 2016
Letter type:


Winnipeg Free Press

  Letter in Winnipeg Free Press (with footnotes to editor)
Re:  Ottawa posts deficit in October as fiscal-year shortfall hits $9.3 billion,  Jordan Press,  12/23/2016

Providing our federal government does not assume excessive debt denominated in foreign currencies, its fiscal position will always be sustainable because it can "print" whatever Canadian currency is required to pay off any Canadian-dollar debt, regardless of size.

While government bond-issuance and spending could theoretically cause inflation, productive economies like ours with high levels of unused capacity can absorb very large amounts before experiencing price increases. For example, Japan has the highest debt-to-GDP ratio in the world, many times larger than Canada's, yet that country worries rather about deflation. 

Those who advise restricting federal deficits despite high unemployment are like a person who refuses to douse a raging home fire for fear of potential water damage. 


1. Alan Greenspan, Former Chairman of U.S. Federal Reserve

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default."

2. William Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia

"Students in every mainstream macroeconomics class, and that means almost all students, would have predicted, based on the nonsense they were learning, that the high deficits and high public debt ratios in Japan at the time, should have driven interest rates sky high, that bond markets should have stopped buying government bonds, that the government should have run out of money, and all the time that these disasters were unfolding, that inflation should have been be galloping towards hyperinflation.

Nothing like that happened.

Neo-liberal economists wrote off their mistakes.......Their ad hoc defense was convenient because the Japanese experience with sustained high fiscal deficits, the world’s largest public debt to GDP ratio, close to zero interest rates, and deflation, was totally at odds with their economic theories.

It was a mind-boggling failure to explain reality."




Modern Monetary Theory in Canada


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Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More