The economic clouds gathering beyond ÎÚÑ»´«Ã½'s borders are so ominous that at least two bank economists recommend Canadian governments, and particularly Ottawa, start thinking about a contingency plan should the world be plunged into a second crisis - further stimulus spending.
CIBC chief economist Avery Shenfeld, who cautions that another recession is not in his baseline forecast as yet, believes ÎÚÑ»´«Ã½'s best response to a new crisis should not be for the Bank of ÎÚÑ»´«Ã½ to cut interest rates further.
That would merely stimulate an already overheated housing market and lure even more households to take on debt.
Rather, Shenfeld recommends that the federal government do the borrowing and use the money for a second round of stimulus spending on needed infrastructure such as roads and power projects that will serve the economy well into the future.
Ottawa is well-placed for a second round of deficitspending because its books are relatively sound and it could borrow at very low rates. He says the government could actually wind up richer rather than poorer by borrowing now.
"Ten-year rates have been below two per cent, and if you take on inflation, the economy might be growing long term at something like four per cent in nominal terms," he said.
"So if you can create some additional room for economic activity because you've built things the economy needs, it could pay off in future tax revenue flows that pay the interest."
Shenfeld's thesis gets some support from Doug Porter of the Bank of Montreal. He says Ottawa should not push the panic button on a second round of stimulus until it is needed, although given the lag time in getting useful infrastructure projects going, it would be wise to draw up contingency plans.
Speculation around global recession has mounted as Europe's problems look more intractable.
