This is certainly a federal budget that is gaining a great deal of attention. Reason being that Canada's economy is suffering the effects of the world-wide economic breakdown and that the government of Stephen Harper is on very shakey ground. Since taking over the Liberal party leadership, Michael Ignatieff has been able to recover much of the Liberals lost territory and it now appears that they have a slight lead on the governing Conservatives. So, any response in this budget that is seen to be inadequate might be enough for the Liberals to justify taking Harper's government down. We'll have to see the budget first.
The Globe and Mail's Andrew Steele wrote an excellent entry on his suggestions for Minister of Finance Jim Flaherty. Steele states that the Canadian consensus that simply fixing old infrastructure will help is flawed. He states that it might even take more of the banks cash thus making them even more "tight-fisted" than what they are now. According to Steele, this will take even more cash away from cash starved Canadian business.
He suggests that Flaherty calls the head of the chartered banks (yes, there are only 5) into his office and tell them that he is going to create a $5 billion dollar loan guarantee fund. The government will secure 25% of it. If the banks don't hand out that cash by a fixed date than Flaherty should tell them that he will nationalize the banks and hand out the money himself. According to Steele "That will inject some money into the economy faster a speeding bullet. "
He's right. The Canadian banks were not allowed to take the risks that the U.S banks did and are now actually all profitable. Their desire for caution is good, but we are not going to get out of these problems by allowing the money supply to dry-up. If anything, I would argue that now is the time for the banks to extend themselves.
I would like to add to Steele's argument, though I'm sure he wouldn't agree with my next point. I think we should use the Canadian banks (threaten them with nationalization even) to promote Canadian economic interests. Think of how much we could end up owning that we didn't own before if the Canadian banks were to adopt some sort of Canadian business first policy. This could help Canadian companies to buy up pieces of foreign business operating in Canada at a discounted rate. Problem with this is though that that could anger our foreign partners and cause them to do similar things to our industries. Another question that would need to be addressed is how much do we actually still own and what is the number of Canadian companies that are operating abroad.
There might be an advantage, from a national perspective to having stable banks with money reserves backed up by the federal government at a time when many other banks are not so stable.