I read David Charbonneau’s rant on capitalism (The Daily News, Dec. 4). It was so over the top I just had to respond.
He is quite right in saying there has been a hollowing out of the middle class in recent years because of Keynesian theory. All politicians and bureaucrats like the part of John Maynard Keynes’ theory that in recession, one should lower the interest rates and increase the money supply to prime the system and get the economy moving upward again.
However, they don’t like the part that when the economy picks up, interest rates should be raised and governments should run surpluses and pay down debt.
The only politician who does this is Stephen Harper, it is no coincidence he trained as an economist rather than a lawyer.
Interest rates and the money supply are not determined by capitalists as
Charbonneau suggests, they are set by bankers, who are government employees.
If Charbonneau thinks times have been tough on the middle class, there is more in store.
Baby boomers are just starting to retire and the low interest rates he has been complaining about have been devastating to pension plans.
The majority of pension plans were expecting returns on investment in the neighbourhood of eight per cent, most of which would come from bonds. Today, few bonds pay more than two per cent. That is 75 per cent less than planned.
This means hundreds of pension plans are underfunded by billions of dollars.
In 1981, when I was a young financial advisor, Evan Wolfe was the provincial finance minister. He went on the Jack Webster show and told the province there was not going to be an inflation adjustment for provincial superannuates because the superannuation fund portfolio had dropped in value by 30 per cent because of the rise in interest rates. If you want to know how this is ask your financial advisor.
The inflation rate in 1981 was 13 per cent so the pensioners that year took a 13 per cent haircut on their pensions.
The superannuation branch has been dissolved and the plan has been transferred to the B.C. Pension Corporation so future cuts (and there have already been several) could not be blamed on politicians.
Last week, a judge in Detroit declared that in the bankruptcy of the City of Detroit, pensioners of the city would get 18 per cent of their pensions. How would you like to be an 80-year-old pensioner, unable to work and told your $2,000 a month pension is now $360?
And capitalism had nothing to do with it.