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Why Canada's mid 90s solution will not work for others today


Canada faced similar problems to the U.K. back in 1993. The Wall Street Journal: describes how:
Taking over as finance minister in 1993, Paul Martin inherited a looming disaster. The government was running a deficit worth 6.6% of GDP. By the following year, gross government debt had hit 101% of GDP, while net debt was over 70%, even as GDP registered a strong rebound–it grew 4.8% in 1994–from the recession of the early 1990s.
Canadian government spending was cut by 15% (considering inflation) from 1994 - 1996. The budget deficit achieved a surplus in just three years. Canada's crisis disappeared was solved quite easily in retrospect, once tough austerity took place.
So will the Canada model work? Can the U.K., or Eurozone nations for that matter, follow Canada's early 90's play book and fix their debt problems just as easily? The WSJ explains why it will be far more difficult for them.
Canada had some key advantages back then:
  1. A strong global economy in the 90's.
  2. Massive consumer demand from a large neighbor like the U.S..
  3. Positive immigration trends which supplied a young and growing population.
  4. An era of booming leverage elsewhere compared to an environment of private de-leveraging today.
  5. We'll add another -- Canada benefited handsomely from the China-driven global commodities boom.
  6. A strong newly elected majority government...
Taken together, these were some enormous advantages relative to where debt-ridden nations stand today. Nothing is impossible, but we shouldn't expect the smooth ride Canada had.







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