You may hear Canada’s federal government bragging that their
debt to DGP is only around 35%. That is not bad, but when you realize that a
lot of this debt is shoved on to the provinces, you may think differently. The
ones that really should be peed off are Albertans because their provincial debt
is virtual nil. So who are the big provincial debtors? You got it: Ontario and
Quebec and to a lesser extend BC. The latter with close to 47 Billion loonies
in debt. No wonder BCers love nature so much!
That is a lot prettier than their wallets!
We are also talking so much about China’s growth and the end
of the U.S. and Europe as economic super powers. The Euro area plus the United
Kingdom has a GDP of over 15 trillion in U.S. dollars. This, in spite of the
large drop in exchange rate between the EURO and U.S. dollar recently, otherwise
the European economy would have been closer to 19 trillion! The U.S. economy is somewhat smaller;
it is barely touching 15 trillion. China? It has now exceeded the size of Japan’s
economy and counts just over 7 trillion.
With Europe and the U.S. economies counting close to $32 billion is
China with a GDP of $7billion really that influential?
While the Euro-area combined with the United Kingdom is
close to 400 million people and the U.S. counts just over 300 million, China
counts 1.3 billion or 1,300 million people. Thus who is more productive a
Chinese, a European or an American? It is the Canadian and Australian! They
produce $50,000 and $60,000 per capita compared to $48,000 and $39,000 for
Americans and Europeans while the Chinese barely earn a paltry $5,430 per
capita.
So let’s go back to government debt: in the 1990s, Canada
was deep in ‘doodoo’. In 1997, the Federal debt reached 92% of GDP not counting
municipal and provincial debt. No wonder we feared that under Mulroney we might
become a third world country! We fought the national deficits under leadership
of politicians such as Ralph Klein and Paul Martin. But they did have some help
from falling interest rates and rising commodity prices. In 1997, debt of the
Federal Government peaked at $563 Billion. Now, being the world’s wunderkind of
financial prudence would you care to estimate our federal debt?
Oops it is $599 billion! We really didn’t repay a lot and
then with the financial crisis we required stimulus. Remember how hard the
Liberals and NDP were shouting at Stephen Harper’s minority government to do
something? Well Stephen did ‘reluctantly’ spend. In the U.S. debt nearly doubled to $14
trillion over those years. So how does a government pay off its debt? It doesn’t!
Just like on your Line-of-credit, governments pay only interest on the moneys
borrowed and then hope that the country’s economy grows so much through
inflation and real productivity that the debt kind of ‘goes-away’. The graph
below tells it all:
Really, we just print money and earn more by building an
ever more efficient, i.e. more productive, economy. As long as our economy
grows so will our GDP and so will our debt ‘disappear’.
![]() |
Canada's Debt Statistics |
What is the real solution for Europe and the U.S.? It is not
repaying debt as many Gurus would like make you believe. Much of the U.S. debt
came from the Iraqi and Afghanistan wars; also the bailouts of the financial
and automobile industry resulted in a lot of debt. But now both are recovering
and car makers and bankers start to repay some of the bail-out money and no
additional expenditures are required. Government spending is likely to decline
or at least stabilize. Some austerity may be required and many U.S. government
levels have reduced staff. There are probably excesses in the system such as
grossly overpaid firemen in forever-bankrupt California but overall we don’t
want to overdo austerity.
It may be politically popular in Germany and the
Netherlands to demand severe austerity in Greece and Spain but that only
reduces growth further. What really is required is lower interest rates and
renewed growth. The same in the U.S.; it’s economy is now gradually picking up
and will likely grow at an even faster pace in the coming years. This, plus a
generous supply of affordable energy and a recovering housing market will
probably carry the day. In a few years, you’re likely to see politicians
claiming how they saved the nation’s economy rather than its hardworking
citizens. Of course, if those same politician’s don’t resolve their ‘fiscal
cliff’, which is nothing more than political chicanery, then they could delay
the U.S.’s recovery significantly and add to that country’s already high debt
load.
None of us are angels – even the gurus and talking heads who
have their personal agendas. A lot of government number comparisons between
countries are like comparing apples and oranges. For example here is a
comparison between Canada’s government debt and that of the U.S. From my
estimate, Canada’s graph includes provincial debt while that of the U.S. appears
only to include federal debt. I have no clue as what is included in the
European chart. But with data like this, who needs an enemy! Also, included is
a table from Statistic’s Canada that may shed some light on the Canada's real situation. Talking about pots calling kettles black.
![]() |
Click on images to magnify |
No comments:
Post a Comment