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As U.S. opens the vault, Harper warns: Uncertainty is ‘the new norm’

Prime Minister Stephen Harper says Canada will keep trying to help its two citizens on death row in Iran.

The Canadian Press

Stephen Harper is warning Canadians that global economic unease is here to stay – a message he's delivering just as MPs prepare to return to Parliament to pass the remainder of the Conservative restraint budget.

"I am sort of coming, and I think many Canadians are coming, to see a lot of this uncertainty as the new norm," the Prime Minister said in an interview with the Sun News Network on Thursday.

His comments come as the U.S. central bank announced a new round of efforts to stimulate that country's sputtering economy, the most aggressive steps it has taken in three years. They include a pledge that would keep interest rates low levels for years to come.

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Mr. Harper is defending his own prescription for economic woes – spending cuts, relaxing environmental oversight, free-trade deals and fewer restrictions for foreign investment in telecom.

"What I say to Canadians and to investors in Canada, rather than fret too much about the week-to-week and month-to-month uncertainties in other countries – over which we have very limited control – what we need to do in this country is do all we can to ensure our economy will create growth, well-paying jobs and prosperity," Mr. Harper said.

With an economy that's heavily dependent on exports, Canada is especially vulnerable to shocks to the global economy.

Mr. Harper said the bleak outlook for the United States is a reminder of the need to find other markets for Canadian goods.

Mr. Harper's government has signed free-trade deals with nine countries and is negotiating with about 50 more – including the 27-member European Union – to open markets.

The Prime Minister said he didn't expect that in 2012 he'd still be seeing this level of insecurity in world markets.

"I thought that while the recovery would be slow, I didn't expect the level of uncertainty that we still see in the global economy," he said, He noted that while the troubled European Union has taken some important steps to deal with debt troubles, lots of work remains.

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The same worries about the global economy emerged Thursday in Washington, as the U.S. Federal Reserve made an open-ended pledge to stimulate the flagging economy by leaving interest rates at ultra-low levels for years and printing hundreds of billions of dollars to buy financial assets.

The U.S. central bank signalled it is prepared to maintain that stimulus even after the economy begins to pick up speed, implying that American borrowing costs could remain at low levels for several years.

The Fed is promising to spend $40-billion (U.S.) a month on mortgage securities to dampen borrowing costs. There have been two previous rounds of such stimulus, but this time there is no expiration date, with the Fed saying it will push more money into the economy until joblessness begins to fall.

The extraordinary combination of measures represents the Fed's most aggressive bid to jolt the economy since the recession ended in 2009.

The newly vigorous assault on unemployment comes amid a global deceleration in economic activity – and the heat of the U.S. presidential election campaign.

Much of Europe is in recession, China's economy is suffering from lack of demand for its exports, and Canada is running a record trade deficit. That's interfering with the Fed's efforts to meet its legislative mandate to generate "maximum employment."

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The unemployment rate has been above 8.1 per cent since February, 2009, and more than half of the eight million Americans who lost jobs during the recession remain unemployed.

"The weak job market should concern every American," Fed chairman Ben Bernanke said at a news conference. Later, he added: "We're just trying to get the economy moving in the right direction so we don't stagnate at high levels of unemployment."

In response, stock markets jumped to their highest levels since 2007, and the price of gold climbed as some investors bet the Fed's efforts would spark rapid inflation.

Still, few expected the U.S. central bank to empty its arsenal. "This is a bold statement," James Marple, senior economist at Toronto-Dominion Bank, said in a note for the bank's clients.

Republicans criticized the measures, but Mr. Bernanke anticipated criticism, concluding his prepared remarks with rebuttals to the common charges that the Fed's policies are inflationary and unfair to savers. Asked if he was worried about influencing the presidential election, Mr. Bernanke insisted the Fed is apolitical. "We just don't take those things into account," he said.

In Ottawa, members of Parliament return to the Commons on Monday for a fall sitting that will last until mid-December.

The Conservatives must still pass a second budget-implementation bill for their 2012 fiscal plan and they expect resistance from Thomas Mulcair's NDP, which does not have the votes to block the legislation but can nevertheless slow it down.

Mr. Harper told Sun News' Byline With Brian Lilley show his economic policies are trying to position Canada for what he called the "very radically changed [global] economy we see emerging."

The Prime Minister registered significant ongoing concern about the U.S. economy and its debt problems – "the so-called fiscal cliff we're approaching" – describing that country's unemployment rate of 8.1 per cent as worse than it looks.

"If the U.S. is going to grow slowly for a very long time, we'd better make sure we finally get around to diversifying our trade," the Prime Minister said. "That's what this government is doing."

Canada is trying to strike a trade deal with the European Union as well as India. It just made a deal to provide Canadian investors more legal protections in China, but Mr. Harper said he hasn't decided what the next steps with the Asian giant might include.

Separately, Mr. Harper called the mob attacks that killed the U.S. ambassador in Libya "extremely disturbing, horrific and disgusting." Canada has closed its embassy in Cairo. He said his government has limited expectations about what will emerge from the so-called Arab Spring, where populations have toppled brutal dictators.

"We view all of this ... with great caution," Mr. Harper said, noting he hasn't seen growth in respect for the rights of minorities and women in these Arab countries.

"Mob rule is not democracy," he said.

"Just because there is a popular overthrow of a dictator doesn't mean the next regime will be based on democratic norms," Mr. Harper said.

"So this is something we're watching and obviously requires our continued engagement and work."

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About the Authors
Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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