On 8 July, federal finance minister Bill Morneau announced that the deficit had ballooned to an astronomical $343 billion. The total government debt load is predicted to surpass $1 trillion for the first time in Canadian history, reaching $1.2 trillion sometime next year. This unprecedented level of government spending begs the question: When will the shit hit the fan?
Pulling back from the edge
March was the biggest one-month plunge in GDP since record-keeping began in 1961. This collapse is on par with the losses during the entirety of the Great Depression in the course of a few weeks. This was reflected with the Toronto Stock Exchange (TSX) falling from 18,000 to 11,000 in just three weeks in March.
Faced with a complete collapse, the federal government has pulled out all of the stops to shore up the system, injecting hundreds of billions. Morneau justified this record deficit by saying “without government action, millions of jobs would have been lost, putting the burden of debt onto families and jeopardizing Canada’s resilience.
The main supports the federal government initially rolled out were aimed at stopping the social explosion which would have been caused by millions of people thrown out of work. This took the form of the Canada Emergency Response Benefit (CERB) which provided direct aid of $2000/month to millions of workers. So far, over eight million Canadians have accessed CERB and the total cost of this program has topped $80 billion.
While the bosses complain endlessly about the millions of people barely scraping by on the CERB, the fact remains that the vast majority of the money being doled out by the federal government is going directly to prop up major corporations. While the CERB costs $80 billion, the Canada Emergency Wage Subsidy (CEWS) which sees the government pay the wages of over 750,000 private sector employees is over $82 billion. You don’t see any capitalists complaining about the government paying the wage bill for them!
In addition to this, there is the Canadian Emergency Business Account (CEBA), which provides direct financial aid to Canadian businesses of all sizes, and which amounts to $40 billion. Over 700,000 businesses have received financial support through this program. But by far the largest amount of all has so far been kept under wraps. According to the Toronto Star, on June 11 the Federal Department of Finance released a list of business supports totalling a whopping $700 billion! Of this, they have yet to divulge any more details. The federal government has made it clear they intend to do whatever it takes to save capitalism. But can they?
According to the former governor of the Bank of Canada Stephen Poloz, the current crisis is “more like a natural disaster than a recession.” Poloz therefore predicts a “reasonably swift return to growth for significant segments of the economy.” On the surface, this seems to be true with the TSX having bounced back up to over 16,500.
However, it is not that simple. The massive government intervention has created the strange effect where the stock market has rebounded but there has yet to be a recovery in the real economy. As Pattie Lovett-Reid, CTV News’ Chief Financial Commentator explained: “Markets don’t care about a pandemic. They don’t, sadly, care about social injustice. They don’t necessarily care if they personally disagree with government policy. Investors care about making money.” In this instance, they care about taking your money.
While the coronavirus certainly acted as the spark, it is important to understand that the pandemic is not the cause of the current crisis. The root cause of the current crisis is the crisis of overproduction which is inherent to the capitalist system itself. Capitalism increases productive capacity at a much higher rate than the market’s ability to absorb that production. This is why capacity utilization has trended downwards ever since the 1960s. There is no reason for the capitalists to invest in production if they cannot sell the products.
Far from being in a healthy state, the Canadian economy was stumbling along prior to COVID-19, eking out a paltry 0.3 percent growth rate in the 4th quarter of 2019 and completely stalling in February 2020. Hardly the signs of an economy ready to bound ahead. COVID-19 simply performed the function of a knock-out punch which struck the jaw of an already weary and beleaguered system.
The government therefore hasn’t saved the system, they have only placed it on intense painkillers for the time being. What has taken place is that on the basis of mountainous sums being injected into the system, the government has insured capitalism against failure. Stocks are going up because, as the Globe and Mail explained, this has “created the illusion that financial and real estate markets are always a one-way bet. That is a dangerous fantasy for policy makers to peddle, and one that undermines the very basis of our capitalist economies.”
So speculators continue to post gains on the stock market almost solely on the basis of the government injecting hundreds of billions into the economy. We have therefore not seen mass business foreclosures. But this should not be surprising. Why would you go under if the government is paying your bills? What this means is that the stock market rebound has been entirely fictitious.
This has led to the phenomenon of zombie businesses, staggering along only because of government support. Already prior to the full brunt of the COVID-19 pandemic being felt in Canada, the Bank of Canada found that 25 percent of businesses were “zombie firms,”meaning they were unable to bring in enough income to pay the interest on their loans. What the current situation has led to is large portions of the economy being on sustained life support.
Don’t worry about the debt?
One of the fascinating things is that all of a sudden, when it is a matter of saving capitalism, conservative analysts across the board have done a 180-degree somersault on the question of debt. For example, the Globe and Mail, normally paragons of fiscal restraint when it comes to things like funding healthcare and education, has now done a complete about-face.
The central argument posited by the Globe and Mail is summed up in the title of the aforementioned editorial, “How is Ottawa going to pay off its COVID-19 debt? With any luck, it won’t have to.” Why does the Globe and Mail, all of a sudden, think this? The Globe uses the example of WWII where the federal government went massively in debt. Following WWII, the government didn’t actually pay the debt off but continued to run deficits. However, the debt shrunk in importance as the debt/GDP ratio decreased. What is conveniently left out is that this was based on 5-6 percent yearly growth rates.
While the federal government is predicting a bounce back of 5.5 percent next year, it is unclear why. This seems very unlikely as this would be a higher yearly growth rate than anything experienced since the 1960s. This is also predicated on no second wave of COVID-19 infections, no dramatic increase in business closures as well as a reopened Canada-U.S. border, all of which are questionable at best. This also doesn’t take into consideration the effects of a trade war with the US which recently flared up again.
While economists are convinced that we don’t need to worry about the debt, a Maru/BLUE poll conducted in mid-July found that 76 percent of Canadians are concerned about how the deficit will affect future generations. However, Morneau has downplayed the problems with the government borrowing such large sums of money, saying, “The cost of our debt is lower than it’s ever been before.” While this is true, it doesn’t mean that the debt is not a problem.
What is happening is that the Bank of Canada has unleashed a vast program of quantitative easing. The Bank of Canada is essentially creating billions of new dollars every day and lending them to the federal government. In layman’s terms, the state is printing money and lending it to itself! This is precisely why interest rates have plummeted. As supply and demand dictates, when financing is nearly unlimited, the cost of that financing will be very low.
The yield on government bonds has collapsed to mere fractions of a percentage point. Normally this would not make any sense as no one would purchase government bonds at such a low rate as you would actually be losing money to inflation. However, inflation has also plummeted as there are mass deflationary pressures from the consumer market taking such a massive hit with millions out of work.
Does this mean that the proponents of Modern Monetary Theory are correct and you can simply print money with little or no consequences? Sadly, the fantasy land with a magic money tree is not real and things like debt and interest do matter.
The Bank of Canada can get away with such measures in the short term. However, increasing the money supply with no commensurate increase in material wealth will inevitably reverse the deflationary tendencies and inflation will start to rise, increasing the cost of goods and services. If this is left unchecked, this will erode the living standards of the working class, leading to social explosions—precisely what the capitalists are trying to avoid.
The only way the state really has to mitigate inflationary pressures is to raise interest rates. This increases the cost of borrowing money and therefore depresses demand—pushing the rate of inflation downwards. But low interest rates are precisely what is allowing the government to borrow such monstrous sums of money in the first place!
Eventually, interest rates will have to come up. This will cause a huge budgetary crisis as the servicing of the debt will get out of hand. This is a recipe for austerity which will again lead to class struggle which the government was trying to avoid in the first place. Either way, revolution is coming.
The great balancing act
In the federal government’s fiscal update published in early July they state, “This is truly the challenge of our lifetime.” Indeed, they are walking a fine line between economic collapse and social explosion. On top of this, there is the COVID-19 pandemic which has not gone away. Every attempt to open the economy risks a rise in cases. But maintaining lockdown measures will make the economic crisis worse and the government debt will grow even bigger. The bigger this ticking debt time bomb grows, the worse the crisis down the road.
In the short term, the Liberals are moving to end CERB and transfer people onto EI or the corporate wage subsidy program which will be extended at least until December. But recent studies have shown 82 percent of people receiving the CERB (2.9 million) will be worse off on EI, with as many as 2/3 who won’t qualify for EI at all. Another poll showed that if the supports are removed, 21 percent of people will lose their homes. If the Liberals aren’t careful, they will spark a pitchfork rebellion. This means that it is likely that they will have to maintain something like the CERB or a modified EI in the near future.
However, this doesn’t mean that the Liberals can simply buy class peace. Anger is growing at all levels and there is a lot of combustible material in society waiting to explode. Inequality is a major issue which has only gotten much worse because of the pandemic with people like Bezos making $13 billion in a single day while unemployment is at record levels!
This is the opposite of what happened in the Great Depression where inequality peaked in 1929 with 0.1 percent owning 25 percent of all wealth. The laissez-faire policies at the time actually led to inequality declining as many capitalists took big hits with the stock market crash. However, the current policies are leading to the opposite phenomenon with inequality skyrocketing! This is politically dangerous for the capitalist class but there is not much they can do about it.
Discontent searching for an outlet
In this situation, the minority Liberal government finds itself bizarrely stable. This is not due to the popularity of corruption-riddled Trudeau who has all but lost his bump in support from the beginning of the pandemic. This has more to do with the complete lack of opposition.
Andrew Scheer and the Conservatives are even more hated than Trudeau as they are generally seen as heartless bastards for pushing to end the CERB. The NDP has continued the trend of being barely discernible from the Liberals. The reformist outlook of the NDP leadership has led them to not criticize the massive corporate bailouts and in some instances they have even championed funneling hundreds of billions of dollars into corporate coffers as they did with the wage subsidy program.
It is unlikely that the weak minority government will be brought down while COVID-19 continues. However, eventually the government will fall and in this context there exists room for the NDP to capitalize on the discontent. The Liberals will eventually attempt to offload the cost of this debt onto our backs in the form of austerity measures, and by simply arguing against this, the NDP could benefit from the inevitable mass anger.
In the short term, any one of the various municipal or provincial governments could very easily provoke a mass movement. While municipalities have seen their revenues plummet since March, they are not permitted to run deficits. This led the mayor of Toronto, Canada’s largest municipality, John Tory to threaten a slew of deep cuts to social services.
Municipalities are notable for their huge working class with a preponderance of public sector and unionized employees. If these municipal debts are allowed to balloon out of control, we could see uprisings in any major city in Canada against austerity measures.
Provincially, the most unpopular premiers in the country are Brian Pallister in Manitoba and Jason Kenney in Alberta. You don’t have to be a genius to figure out why this is. Pallister and Kenney have seen their approval rating plummet because they are the only premiers who have implemented austerity measures during the pandemic. Kenney has been heartless enough to cut hospital staff right when they are needed the most and cut education staff right when they are reopening schools.
While it is common for people on the left in Canada to view Alberta as one homogenous reactionary bloc, Marxists have always explained that this is not true. There are class contradictions in Alberta and on the basis of this crisis, the province is a powder keg waiting to explode. Alberta could quite quickly find itself on the vanguard of the class struggle in Canada.
What is occurring in Alberta is a classic contradiction between the political superstructure and the economic base. The political elite in the form of Jason Kenney is trying to rule as it did in the past while there is no basis for this anymore. Successive decades of unchallenged Conservative rule was based on the largely rural population and a booming oil and gas sector. Today, Alberta is largely urbanized and the oil and gas sector is embroiled in an existential crisis.
In this context, Kenney is ruling like a tyrant, forcing working class people to pay for the crisis in the most crass way. Albertans are known to not take shit from anyone and it is only a matter of time before this anger finds a focal point and class struggle explodes in Alberta with a bang.
The spectre of socialist revolution
There is a spectre haunting Canada, the spectre of socialist revolution. It is not a matter of if but a matter of when. Whether or not capitalism is good or bad is no longer an academic debate but a concrete question in the lives of millions of working class people in Canada. Capitalism is destroying people’s lives and the growing interest in socialism is testament to that fact.
However, while revolution is inevitable, victory over capitalism is not. Indeed, history is littered with failed revolutions. Socialism is a different kind of society. A society not based on the anarchy of the market but on the democratic planning of production for human need instead of corporate profit. It is therefore something consciously built which we must consciously fight for.
This is why Fightback and the International Marxist Tendency are building a revolutionary organization to provide leadership to workers and youth in their struggle against the capitalist system. I appeal to you to join us in this fight!