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Canada to Follow U.S. Into 'Fiscal Cliff' Recession

By: Ian Campbell | Thursday, November 8, 2012

Jim Flaherty, Canada's Finance Minister, is reported as having said yesterday that if the America hits the so-called fiscal cliff on December 31 Canada will follow the U.S. into recession.

I believe that out of necessity U.S. politicians reluctantly will cooperate before, and perhaps even after December 31 (retroactive changes to scheduled deficit reductions and tax changes could always be made after December 31) to forestall U.S. fiscal cliff issues. However, consider that U.S. Federal deficit and debt ceiling (a separate issue from the 'fiscal cliff') eventually have to be dealt with.

I don't see an obvious solution, other than further postponement, to America's monthly net trade deficit and Federal deficit issues. Overspending always must lead to problems. In a 'fiat currency and globalized world', I believe this to be true even for the country enjoys the privilege of being able to print the world's reserve currency.

Note my specific use of the word 'enjoys' in the context of the world's reserve currency. America is not guaranteed that privilege, and no one in my view should think that it is.

You might want to read Economists Worry About Fiscal Cliff Resolution, from the Wall Street Journal's Real Time Economics Blog. Written after Tuesday's U.S. election results were known, the article cites the comparatively little change in the makeup of the Office of the President, the House, and the Senate as being worrisome in the context of bi-partisan cooperation in resolving fiscal cliff (and I assume 'debt ceiling') issues.

Topical References: Fiscal cliff will plunge Canada into recession: Flaherty, from The Financial Post, from Canadian Press, November 7, 2012 - reading time 2 minutes. Also read Economists Worry About Fiscal Cliff Resolution, from Real Time Economics, from The Wall Street Journal, Michael S. Derby, November 7, 2012 - reading time 2 minutes.


Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Business Transition Simplified

Through his website and his Business Transition & Valuation Review newsletter Ian R. Campbell shares his perspectives on business transition, business valuation and world economic and financial markets influences on those two topics. A recognized business valuation and transition authority, he founded Toronto based Campbell Valuation Partners Limited (1976). He currently is working to bring his business valuation and transition experience to both business owners and their advisors in our new economic, business and financial markets normal.

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