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"I keep wondering when I should change the category title from 'The current recession' to 'The recent recession'. Not for a while, it seems."
No! That would be tempting fate! Plus, things don't look so rosy in the ROW (aka USA).

The terms of trade were exceptionally favourable to Canada on 08:03, IIRC. Haven't we just returned to normal?

I hope a 96 cent dollar isn't *normal*, but I fear Nick might be right.

Yeah, I should have mentioned that the fall in the terms of trade was from an abnormally high peak. We're going to have to get that remaining 3% of GDI by increasing output.

Ha-ha! That backlink to your delicious smackdown of NAMU "theory" more than makes up for your last few weeks of census obsession. I'm back onboard!

I still think we need to worry about where this recession is headed. I am afraid that we are going to see some extremely wrong-headed policy south of the border if the Republicans gain more power, as seems all too likely. They could still create a nasty depression there, and that can't be good for Canada.

As far as I am concerned, we should still be applying more stimulus, and it sure is no time for the Bank of Canada to let up on the accelerator.

"we should still be applying more stimulus"

I'm OK with what we've done. Better to keep some ammo in reserve in case the US decides to self self-immolate.

Patrick: the ammo metaphor is tricky. For fiscal policy, it has some applicability. If there's a limit on the debt, then there's a limit on how big a deficit you can run for how long. The faster you are shooting, the short the time you can continue to shoot. For monetary policy it doesn't work at all. If you think of monetary stimulus as low interest rates, you can keep interest rates low forever, if you need to. The only limit is it will cause inflation if you keep them too low for too long, but that inflation is a sign you didn't need to. And if you think of monetary policy as printing money, as long as you don't run out of paper or ink...

Plus, as in my old post, bears get bigger as they grow. If you need to shoot a bear, don't save ammo for later. The longer you let it grow, the more ammo you will need to kill it. http://worthwhile.typepad.com/worthwhile_canadian_initi/2008/11/shooting-bears-ammunition-and-central-banks.html

Nick: I was thinking about fiscal policy in the event that we too end-up in a US style trap... but let's hope it doesn't happen and if it does that the BoC does a better job than the Fed.

I would argue that we are in such a trap. We have a sizeable output gap even with interest rates at essentially zero. That, to me, is the definition of a liquidity trap. And it seems likely that our economy will get another big negative shock if U.S. policy goes nuts and triggers a further downturn there.

There is no need to "run out of ammo". The government should just issue bonds and the Bank of Canada should buy them up as fast as it issues them.

If it works and the economy takes off, only then will it be time to think about how to get all that extra money back out of the system to prevent inflation, but that is really no problem. Just raise taxes to pay off the debt caused by the stimulus.

How about a GST cut now, coupled with a commitment to raise GST in the future to recoup the loss?

Paul: I'm more optimistic than you. 18 months ago I would have been a lot more favourable to your proposals. But, if the US gets worse, (and if Europe gets worse), it might spillover into Canada. I can't figure out the likelihoods of those things though.

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