Markets crash," deficits necessary Bank economists

October 6, 2008 10:20 pm

Today markets crashed all over the world. At one point the TSX was down over 1000 points and the Dow Jones in New York was down by over 800 points. Markets had fallen 7% points in London, 9 % in Paris and in Europe generally they were down significantly as well as sharply down in Asia and Latin America.In Russia they fell by 19 %.The carnage was global.Oil has dropped to $87.81 a barrel just as I predicted and the Canadian dollar is now trading at 90.8 cents to the US dollar.
  In Toronto a panel discussion of leading economists from the five big Canadian banks stated their approval of deficit spending as a necessary response to the current circumstances. In doing so they have confirmed what I have been arguing and writing about for years. However, my satisfaction in noting this was tempered by the stubborn and foolish response of the party leaders of the NDP, Conservative and Liberal parties all of whom continue to insist that they would not in any circumstances run a deficit. This ostrich like posture in the face of the potentially most serious economic downturn   since the crash of 1929 and the Great Depression does them no honour. It is in fact a serious abdication of political leadership and political courage.There are scores of economists and politicians in the US who recognize the positive role that can be played by deficits in stimulating the economy. The Chinese have wisely apparently decided to both cut interest rates and run deficits to stimulate their economy in the face of the downturn but none of our major party leaders   seem prepared to embrace this position. They prefer to follow rather than lead public opinion.

Tuesday 4:35 p.m. The markets continue to fall. The Dow Jones is down 500 points while the TSX is down 400 points.The head of the Fed Ben Bernanke has hinted strongly that the Fed will cut rates later this month. This should help.. but the mood remains excessively gloomy.