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May 17, 2011

Debt Crisis? Really?

-- by Dave Johnson

You think we have a debt crisis now? You should have seen the one Canada had in 1993!!! And just like this one, it was phony, designed to scare people into cutting and privatizing government so the rich can get even richer.

The following is from The Shock Doctrine, Naomi Klein, Picador, Pages 324-326. This book was published before the financial collapse, and subsequent "debt crisis." (All emphasis added.)

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In February 1993, Canada was in the midst of financial catastrophe, or so one would have concluded by reading the newspapers and watching TV. “Debt Crisis Looms,” screamed a banner front-page headline in the national newspaper, the Globe and Mail. A major national television special reported that “economists are predicting that sometime in the next year, maybe two years, the deputy minister of finance is going to walk into cabinet and announce that Canada’s credit has run out…. Our lives will change dramatically.

The phrase “debt wall” suddenly entered the vocabulary. What it meant was that, although life seemed comfortable and peaceful now, Canada was spending so far beyond its means that, very soon, powerful Wall Street firms like Moody’s and Standard and Poor’s would downgrade our national credit rating from its perfect Triple A status to something much lower. When that happened, hypermobile investors, liberated by the new rules of globalisation and free trade, would simply pull their money from Canada and take it somewhere safer. The only solution, we were told, was to radically cut spending on such programs as unemployment insurance and health care. Sure enough, the governing Liberal Party did just that, despite having just been elected on a platform of job creation.

Two years after the deficit hysteria peaked, the investigative journalist Linda McQuaig definitively exposed that a sense of crisis had been carefully stoked and manipulated by a handful of think tanks funded by the largest banks and corporations in Canada, particularly the C. D. Howe Institute and the Fraser Institute (which Milton Friedman had always actively and strongly supported). Canada did have a deficit problem, but it wasn’t caused by spending on unemployment insurance and other social programs. According to Statistics Canada, it was caused by high interest rates, which exploded the worth of the debt much as the Volcker Shock had ballooned the developing world’s debt in the eighties. McQuaig went to Moody’s Wall Street head office and spoke with Vincent Truglia, the senior analyst in charge of issuing Canada’s credit rating. He told her something remarkable: that he had come under constant pressure from Canadian corporate executives and bankers to issue damning reports about the country’s finances, something he refused to do because he considered Canada an excellent, stable investment. “It’s the only country that I handle where, usually, nationals from that country want the country downgraded even more – on a regular basis. They think it’s rated too highly.” He said he was used to getting calls from country representatives telling him he had issued too low a rating. “But Canadians usually, if anything, disparage their country far more than foreigners do.”

That’s because, for the Canadian financial community, the “deficit crisis” was a critical weapon in a pitched political battle. At the time Truglia was getting those strange calls, a major campaign was afoot to push the government to lower taxes by cutting spending on social programs such as health and education. Since these programs are supported by an overwhelming majority of Canadians, the only way the cuts could be justified was if the alternative was national economic collapse – a full blown crisis. The fact that Moody’s kept giving Canada the highest possible bond rating – the equivalent of an A++ – was making it extremely difficult to maintain the apocalyptic mood.

Investors, meanwhile, were getting confused by the mixed messages. Moody’s was upbeat about Canada, but the Canadian press constantly presented the national finances as catastrophic. Truglia got so fed up with the politicised statistics coming out of Canada, which he felt were calling his own research into question, that he took the extraordinary step of issuing a “special commentary” clarifying that Canada’s spending was “not out of control,” and he even aimed some veiled shots at the dodgy math practiced by right-wing think tanks. “Several recently published reports have grossly exaggerated Canada’s fiscal debt position. Some of them have double counted numbers, while others have made inappropriate international comparisons… These inaccurate measurements may have played a role in exaggerated evaluations of the severity of Canada’s debt problems.” With Moody’s special report, word was out that there was no looming “debt wall” – and Canada’s business community was not pleased. Truglia says that when he put out the commentary, “one Canadian… from a very large financial institution in Canada called me up on the telephone screaming at me, literally screaming at me. That was unique.”

By the time Canadians learned that the “deficit crisis” had been grossly manipulated by the corporate-funded think tanks, it hardly mattered – the budget cuts had already been made and locked in. As a direct result, social programs for the country’s unemployed were radically eroded and have never recovered, despite many subsequent surplus budgets. The crisis strategy was used again and again in this period. In September 1995, a video was leaked to the Canadian press of John Snobelen, Ontario’s minister of education, telling a closed-door meeting of civil servants that before cuts to education and other unpopular reforms could be announced, a climate of panic needed to be created by leaking information that painted a more dire picture than he “would be inclined to talk about”. He called it “creating a useful crisis.”

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This story of financial interests creating a phony crisis to scare people into cutting and privatizing government is from the book The Shock Doctrine: The Rise of Disaster Capitalism. If you want to understand what is happening to us today, you must read this book. (read more here)

"The best way to stay oriented, to resist shock, is to know what is happening to you and why."

"Nothing is more important in the face of war than cutting taxes" - Tom DeLay, 2003


This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.

Sign up here for the CAF daily summary.

Posted by Dave Johnson at May 17, 2011 9:07 AM


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