Canada has surpassed $1 Trillion in public debt

[vonGarvin]

They do.  You joined the military, and the state pays you for it.

I said "bail me out", not "keep me". 

(Get it?  Joining the military was the stupid decision?  Anyone?  Bueller?)

But, I'm not sure how the "state" is paying my way.  I mean, I offer services to Her Majesty, and she pays me for those services.  I'm not sitting back, taking paycheques as I do nothing. 

OK, some days, I do what appears to be nothing, but trust me, I'm in deep thought.  ;D

 

[dapaterson]

Yes, that was the joke.


But my comment was directed to the disciples of Rand on this board who are all rugged individualists and great lovers of a free, unfettered, untaxed marketplace.  But who also feel that there is nothing contradictory with being a paid servant of the Crown, paid from and spending money raised by taxation, and a Randian.

Apparently, all regulation and interference in the marketplace is bad - unles it's the interference that gets them paid...

 

[SupersonicMax]

There is a difference between a pure socialist system and a balanced system.  I'd like to see Canada remain somewhat balanced.  That, in my mind, does not mean paying for other's stupidity.

 

[Farmboy]

I find it amusing how many hard core capitalists we find inside the CF - all of who are more than happy to have the state pay their way.

ahhh  but if those who are in the CF and believe in capitilism, had another option of doing the same job for a private company.........

Everyone else, however, is gaming and abusing the system for personal gain

I don't remember anyone on here saying something like that.  Hell, I use the system myself as much as I can, but still fight for less regulation and a freer market.

I think what has been said is, no more government regulation.

 

[SeanNewman]

Getting back to the first link I posted here that shows the debt, can anyone explain to me how we don't look significantly better off than the other western countries?

Everything I see on the news says that we are in so much better shape than everyone else but looking at that Economist website we're not that much better.  Yes there are some countries far worse off than us, but we don't look like a shining lighthouse by any means.

 

[Farmboy]

Cause the map shows public debt, that which you and I hold.  Not government debt.

What is concerning econimists in the world right now is governments defaulting due to debt.

Canada has added stimulus money into the system but hasn't had to bail any banks out.

Most other countries have had to bail out banks, insurance companies and "to big to fail" companies. Even then a number have ceased to exist.

Basically no one is worried about Canada paying off it's debts.

 

[SeanNewman]

Ahh, okay sorry I had my definitions understanding backwards.

I thought "public" meant the government, as in "public sector", and "private" debt was "personal" debt.

So you are saying the website is personal debt, which now makes a lot of sense that all of the conversation after that centred around personal debt.

I have no problem admitting when I had something wrong.

Thank you for the clarification.

 

[Brad Sallows]

A quick search didn't yield any "hard" results, but I will hazard a guess that most personal debt is wrapped up in mortgages.  Consumption spending seems to lie somewhere in the 1/4 to 1/3 range of the total.  I am also not exactly sure how many years of "average" annual income is required to make up the cost of an "average" home in any of the major metropolitan markets compared to 30 or 60 or 90 years ago, but the growth of home prices has for the most part easily outpaced the growth in incomes for about 20 years.

A home can be "bad" debt just as much as a new SUV, if neither is truly within the buyer's means.

My pet theory is that when people set out on their own (ie. leave the home they grew up in), they want to keep themselves in the style to which their parents caused them to become accustomed.  They want in 5 years what it took their parents 25 years to amass.  An aggravating factor is that the increase from generation to generation has become much more pronounced.  What was good enough 50 or 60 years ago - 1200 to 1600 square feet of a relatively uncomplicated box of a house - is no longer.  Now it must be upwards of 2500 square feet.  Also, with the increasing cost of urban real estate comes an inclination to put an expensive house on an expensive property - all sorts of fancy cut-outs and add-ons which increase the cost of the basic structure, finished with fancy interiors.

For those living in rental accommodation and no immediate inclinations to having children, there seems to be a widespread desire to live in a trendy and attractive (thus costly) neighbourhood.

Either way, people stretch themselves financially just to have a roof and four walls.  That reduces the income flow available to furnish the roof and four walls, and consumption credit is the answer.  Two or three vehicles rather than one seem to be the norm in the middle class neighbourhoods in which I live.  That pattern was certainly present when I grew up in the '70s, but my recollection is of quite a few used cars and not so many people turning over a new car every 5 years.

The real battle isn't to legislate credit restrictions - governments will get it wrong anyways, causing more problems than are solved and creating a new slice of self-growing bureaucracy to boot - but to manage expectations.  Creditors already manage the problem of poor credit risks.  It shouldn't be up to anyone to decide how much a person should pay next Tuesday for a hamburger today.  If governments cap interest rates arbitrarily, then as sure as night follows day we will shortly observe the consequences of government policies designed to force the extension of credit to the credit-unworthy at prices below what the risk should command.  And governments have no current interest in capping spending on credit; they are all in a mad panic to prop up spending at inflated levels.  Or have people forgotten?

 

[SeanNewman]

Brad,

Two great points you made that I see:

1. Kids today want immediately what it took their parents 25 years to get; and

2. The government has no interest in slowing down spending.

 

[GAP]

If governments cap interest rates arbitrarily, then as sure as night follows day we will shortly observe the consequences of government policies designed to force the extension of credit to the credit-unworthy at prices below what the risk should command.  And governments have no current interest in capping spending on credit; they are all in a mad panic to prop up spending at inflated levels.  Or have people forgotten?

You just described the subprime crisis to a T....Carter changed the laws to allow "everyone" to own a home.....well, they did, for awhile.....

 

[spear]

The last time i checked the canadian national debt was about $285B, and that was like 10 yrs ago.

Now is this one of the reason why we're having HST to try to payoff our debt?

 

[a_majoor]

The Federal debt has passed $500 billion, and many provinces have also racked up massive amounts of debt (Ontario alone has passed the $100 billion mark).

The primary cause of this is the escalating amount of government spending, including new programs, escalating wage and benefit costs (public service wages are @ 13% higher than comparable private sector wages, and when wage and benefit costs are added, the gap increases to @ 33% higher), which in turn increases debt servicing costs (now over $30 billion/year for the federal debt alone).

Governments have also abandonded many of their real responsibilities over the years, such as municipalities ignoring infrastructure maintainence, resulting in cities like London, ON having a $1 billion dollar tab to refurbish the crumbling streets and sewer system, or the multi billion dollar tab for military "rust out". Even more frightening is the estimated $500 billion in "unfunded liabilities" for government pensions and other long term benefit costs. Don't make too many retirement plans based on CPP and OAS.

 

[Brad Sallows]

The primary cause of most of the federal government's debt is deficit financing.  Yes, it means that the root cause is "spending", but the debt has largely grown itself.

Any following figures noted as $B are rounded to the nearest $1B.

From '61-62 to '07-08 (the years for which I have figures from the government's own web site), there were only 14 years in which the operating balance (revenue - expenses) was a deficit, totalling $67B.  The cost of public debt charges was $1,037B (yes, just over a trillion).  (In '61-62 the public debt charge was $832M on an accumulated deficit - debt - of $14,825M.)  I don't know what the pattern of deficit spending was prior to '61-62.

The reports show a peak debt of $562B in '96-'97.  That was the year of a notable absolute cut in expenditures, following a string of remarkably restrained spending growth: from '92-'93 to '97-98 the program expenses were $122B, $122B, $123B, $120B, $111B, $114B.  '97-98 was the year the net budget flipped from deficit to surplus for its decade-long run of surpluses.

When the debt was at its peak, the public debt charge for that year was $47B.  (The debt charge actually peaked at $49B the year before, but interest rates were falling.)  The debt charges as a percentage of debt were under 9%.  That ratio peaked at 14% in '81-82 and was floating in the neighbourhood of 7% from '02-03 onward.

Some educated guesses:
1) By the time the current run of deficit financing is done in 3 years or so, we'll have a net debt of about $600B.  At 7%, the cost of debt charges will $42 per year.
2) At early '80s rates, the debt charge cost could be over $80B.
3) Annual public revenues and program expenditures based on '07-08 should be in the neighbourhoods of $250B and $200B, respectively.

The main conclusions should be obvious.  Much of the public revenue isn't paying for programs, and since interest rates likely have nowhere to go but up, that squeeze will become worse if not unsustainable.

My own take: I see no reason to expect remarkable revenue growth in the current global economic climate, so we won't easily improve the revenue side of the equation.  We should be cutting public spending right now in large amounts, but we are not.  I therefore expect a period of moderate to high inflation to commence in the next few years.  What that does to savings, pensions, and other fixed incomes will not be pleasant.

 

[57Chevy]

Take away the banks' licence to print money

link

The real source of the problem is a privately owned money-manufacturing monopoly that creates virtually all the new money as debt, of which there is so much that the real economy is about to drown in it. But there is a quick and simple fix with a Canadian precedent to support it.

Most people believe the bankers' myth that the money they lend to you today is money that someone else deposited yesterday. The odds of that being true are infinitesimal. They have to create the "money" they lend to you.

This is the way it works. Suppose you decide to borrow $35,000 to buy a new car. You visit your banker, who will ask for collateral; then you will be asked to sign a note for the principal amount with an agreed rate of interest. Once the note is signed, your banker will tap the bank's computer and, presto, a $35,000 credit will appear in your account. The important point is that only seconds earlier that "money" did not exist. It was created out of thin air -- so to speak.

(most of article ommited)
(more on link)
                  (Reproduced under the Fair Dealings provisions of the Copyright Act)

 

[George Wallace]

Take away the banks' licence to print money

link

I think that this is quite a bit of a stretch for someone to allude to.

 

[a_majoor]

This is really the theory of "Social Credit", and at election time I always seem to get the rather nice Social Credit "comic book" which explains this theory in more depth (and with pictures too).

Of course there is a sort of element of truth in the theory, the $35,000 really does not exist yet; it is a calculation of what the bank hopes to receive in the future as you pay off the loan. Remember, while the loan is a liability to you, it is an asset to the bank. Similarly, your deposit or savings account is an asset to you but a liability to the bank (you can choose to withdraw all or part of it at any time, and the bank must cover that cost or risk loosing its deposit base and customers).

Of course you and I are used to making plans based on the future values of our assets, including pensions, RRSP's, credit cards and lines of credit and even the next paycheque. Banks just do that on a much larger scale.