Canada Continues to Avoid Humiliating Welfare State Experiments of U.S. & Europe

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Across Europe and the United States, millions go without work. Those who do work face a lifetime of crippling taxation to pay for the entitlements of their countrymen and the debts of their governments. Canada by contrast is strong. To stay that way, we must never repeat the mistakes of Europe and the United States and we must instead focus on what Canada has already done right. Words: 1320

So said Mr. Pierre Poilievre, Parliamentary Secretary to the Minister of Transport, Infrastructure and Communities and for the Federal Economic Development Agency for Southern Ontario, CPC, (http://www.pierremp.ca/budget/)  in his opening comments in a speech in the Canadian House of Commons (Parliment) last April to defend economic freedom and to warn his colleagues of a fiscal cliff that many economies like the U.S. and European Union were headed to. It can be seen here or read in its entirety below:

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

“What went wrong in the United States?

Many believe that the 2008 financial collapse and recession were the result of irresponsible behaviour by business and banks. In fact, this behaviour was merely the symptom. The illness was massive government intervention to turn the mortgage business into a social program.

The roots of this go back three decades. Presidents from Carter to Bush Jr. wanted to expand home ownership, a worthy mission no doubt. To do this, they mandated government-sponsored enterprises like Freddie Mac and Fannie Mae to cover the risks of loans to people who would otherwise not qualify for them. We call these subprime mortgages.

According to a World Bank report, Freddie and Fannie, both government sponsored enterprises, bought an estimated 47% of these toxic mortgages. Harvard financial historian Niall Ferguson estimated that between 1980 and 2007 the amount of government backed mortgages increased from $200 million to $4 trillion. Furthermore, the American government not only encouraged but forced banks to provide these loans.

To quote the World Bank report, “In the mid-1990s, the government changed the way the Community Reinvestment Act was enforced and effectively compelled banks to initiate risky mortgages”.

Once Americans are in debt, the U.S. government encourages them to stay there by allowing them to write off their mortgage interest. The bigger the mortgage debt, the lower the taxes.

In sum, the government encouraged millions of Americans to spend money they did not have on homes they could not afford, using loans they could never repay and then gave them a tax incentive never to repay it. The state had pumped so much air into the mortgage bubble that it burst. Financial institutions collapsed, taxpayers were on the hook, millions were jobless and one in five American households went under water, and that is to say their mortgages were bigger than the value of their homes.

To make matters worse, those same American households have trillions of dollars in debt of which they are likely not even aware – government debt. The U.S. government debt is now bigger than the entire American economy. This is household debt, as families will need to repay it on their tax bills with interest, now or later. According to the U.S. Treasury Department website, mainland China holds $1.1 trillion of it.

To quote Mark Steyn:

“If the People’s Republic carries on buying American debt at the rate it has in recent times, then within a few years U.S. interest payments on that debt will be covering the entire cost of the Chinese armed forces.”

Imagine, through debt interest, soon American taxpayers will be funding 100% of the Chinese military.

Steyn points out, according to the congressional budget office, that by 2020 the United States government will be spending more annually on debt interest than the total combined military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey and Israel.

[The Result of Europe’s Experiment With the Welfare State]…

The European welfare state borrows on taxes to give people stuff they have not earned. Recently, for example, Greek public sector workers took to the streets to demand the government continue to pay them 14 monthly paycheques per year. We call this socialism. Margaret Thatcher pointed out that the problem with socialism is that eventually you run out of other people’s money. We call that a “sovereign debt crisis”.

Standard and Poor’s has now downgraded French and Austrian government debt and further has reduced the ratings of seven other countries in the Euro currency block. Portuguese and Greek debts have now been downgraded to junk status by all rating agencies.

To avoid bankruptcy, the Greek government needs to borrow more. Because no one will lend its own money to that country, the European Central Bank must step up and lend 150 billion euros of other people’s money. Thank goodness, the EU has a bailout fund to prevent government defaults. Too bad Standard and Poor’s has downgraded that bailout fund. Soon the bailout fund will need a bailout.

What the Welfare State Leads To

I describe this humiliating American and European experiment with the welfare state because…we know where it leads.

• Through government spending, the indulgence of one is the burden of another.
• Through government borrowing, the excess of one generation becomes the yoke of the next.
• Through international bailout, one nation’s extravagance becomes another’s debt.
• Everyone takes and nobody makes.
• Work does not pay and indulgence does not cost.
• Money is free and money is worthless.
• The system punishes work,
• [the system] rewards sloth,
• [the system] taxes the makers to pay off the takers and, quoting Thomas Jefferson,
• [the system] steals “from the mouth of labor the bread it has earned”.

To paraphrase Rudyard Kipling: “In the era of generous government we were promised abundance for all, by robbing selected Peter to pay for collective Paul; but, though we had plenty of money, there was nothing our money could buy, and reality stood up and told us: if you don’t work you will die.”

[The Canadian Way]

Amazingly, opposition members ignore this timeless truth. They see the Europeans and Americans running off the debt cliff and say, “Let’s hurry and catch up”. No thank you, Mr. Speaker. I choose the Canadian way.

Canada is one of the greatest success stories of human history precisely because our leaders were practical and smart. From the beginning, they understood the basic rules of success:

• people should work hard,
• pay their bills,
• spend only what they have and
• let free people do the rest.

When Prime Minister Laurier declared that the 20th century would belong to our country, he said, “Canada shall be the star towards which all men who love progress and freedom shall come”. More freedom meant less government.

• From 1900 to 1920, federal, provincial and municipal government spending was a combined 9% of Canada’s GDP.
• Today, it is 39%.

Low-cost government meant a low-tax nation.

To quote the authors of The Canadian Century, Crowley, Clemens and Veldhuis: Laurier believed that the cost of government, and especially the tax burden, needed always to be kept below the level in the United States, so as to create a powerful competitive advantage for Canada [and] then, as now, Canada’s low-tax worked. In the first 20 years of the 20th century our population grew by an unprecedented two-thirds, the wheat yields in the Prairies by 500% and exports more than doubled.

Today we have an economic action plan based on our history. It tears down the walls of paperwork and protectionism:

• so businesses and workers can reach the cornucopia of natural resources,
• so we can reach foreign markets to create jobs and
• so our entrepreneurs can build a mountain of success rather than drowning in a sea of paper …
• welcomes skilled immigrants in and
• punts fraudulent ones out.

We are in rough seas in the world today, yet we have a solid captain [Prime Minister Stephen Harper] and the bright star of our ancestors to guide him through stormy waters.”

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.pierremp.ca/budget/

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