Finance Minister Jim Flaherty explaining why the federal government's deficit is expected to be much higher than forecast even a couple of months ago:
More than half of the additional spending is aimed at preserving the ailing auto industry, he said.
Economist Jim Stanford in reference to the so-called bailout of the automotive industry:
...the financial support that will be given to the two companies is being delivered (the two governments announced earlier this spring) in the form of commercial loans from a federally-owned bank: the Export Development Corporation (EDC).
It's a loan, not a bailout. And like the $200 billion in loans and asset swaps which the Bank of Canada delivered to Canadian banks in recent months, it should not show up on the federal books as a direct "expenditure."
So what's the real reason for the increase in the size of the deficit? Or did Flaherty flunk book-keeping 101 and go public with a bad number?
Courtesy of Impolitical, here's the latest from Canadian Press and it explains while not really explaining. The government intends to both make loans through the EDC and purchase an equity stake in the companies. And the amounts involved are indeed greater than anticipated to the tune of about $7 billion. But both of those investments are just that: investments and not expenditures. The only way that $7 billion comes directly off the government's bottom line, thus inflating the deficit by the same amount, is if the investments are to be immediately written off as having no value at all. But why would they do that? Why would they inflate the deficit more than they have to? It certainly doesn't conform to GAAP (Generally Accepted Accounting Principles).
As it happens, Jim Stanford is quoted in this article and he doesn't get it either.
Unless of course they want to be able come back to us a few more months down the road and announce that due to their mad, masterful money management skills they've managed to bring the deficit back down — by booking their investments at their actual value. But they wouldn't pull a stunt like that, would they?