The past need not be prologue. That is what Lawrence Summers told me a few years ago when I asked him about the popular argument that high levels of debt inevitably led to low levels of economic growth.
Summers’s words came back to me while reading a commentary by David Rosenberg, the chief economist at Toronto-based Gluskin Sheff + Associates. Rosenberg is relatively famous because he saw bad things happening in the U.S. housing market sooner than most. That kind of foresight earns one a following. When he said he had turned bullish on the U.S. stock market, I bought in. Thanks to Rosenberg, I made a little money.
Rosenberg was warning investors to take Canadian politics seriously. He noted the spread between Alberta and federal 10-year bonds widened dramatically between April 7, when it seemed certain that the Conservatives would form another government, and May 5, the day after the “tax-and-spend” New Democratic Party won a shocking majority. It’s a great observation. Rosenberg then went back to the 1990s to buttress his argument. The Canadian dollar fell by four cents in the six months after Jean Chretien became prime minister in 1993, because, according to Rosenberg, investors were nervous about Liberal Party’s “Red Book” of spending promises.