Debt

[socialist]

I don't believe government debt is all that big a deal.

Debt is how we ensure that those who use assets like roads pay for them when they use them through gas tax, etc. To avoid all debt we would have to pay for infrastructure like roads at the time of construction and not at time of use.

Services consumed today like education and medical care are not financed by debt to be paid for in the future.

[Shady]

It all depends on the size of the debt. If financing the debt starts to use up too much revenue, that would otherwise go to other valuable programs, it becomes a big problem.

[TimG]

It all depends on the size of the debt. If financing the debt starts to use up too much revenue, that would otherwise go to other valuable programs, it becomes a big problem.

Exactly. Debt servicing costs cannot grow faster than the economy. If it does there will eventually be a greek style economic meltdown where essential services are being cut because there is no money to pay for them. Edited March 8, 2015 by TimG

[Ash74]

The ratio of debt vs GDP is the issue right now. Debt is a constant but right now in Ontario alone we are paying 10 billion just in interest. If it was a ministry that would be the third biggest next to health care and education.

You might not see it as an issue but every economist on earth would disagree with you. Water is wet but I am sure you disagree with that as well

Edited March 8, 2015 by Ash74

[GostHacked]

If debt is not good for a person, why should it be good for a nation?

[TimG]

If debt is not good for a person, why should it be good for a nation?

Debt is fine for a person as long as the servicing costs are manageable. Without debt most people would never be able to buy a home or buy a car.

[GostHacked]

Debt is fine for a person as long as the servicing costs are manageable. Without debt most people would never be able to buy a home or buy a car.

With the prices of homes, that debt is not manageable. And since there are many who live paycheck to paycheck, and don't save at all (mainly because they can't because they have debt) one hiccup and all is at risk.

[TimG]

With the prices of homes, that debt is not manageable. And since there are many who live paycheck to paycheck, and don't save at all (mainly because they can't because they have debt) one hiccup and all is at risk.

Again, depends on the person. The prices of detached homes is insane today but condos are still reasonable in most cities although it is not clear that purchasing one is smarter than renting one.

[John]

I agree that it's the size of debt matters more than the existence of a debt.

A $10 billion interest payment on that debt is a pretty big deal. Over the past 10 years we've paid out something like $100 billion in interest.

If we had the best healthcare in the western world...the best education...the best roads...the best "everything" I might be able to argue that it's justified...but I just can't.

[Guest]

http://www.telegraph.co.uk/finance/economics/11458161/From-bust-to-boom-How-the-world-became-addicted-to-debt.html

Interesting graphic in this article. You can zoom in and click on a country to get some details on its debt.

Here's the scoop on Canada, according to the graphic.

government debt to gdp

88.1

Canada's household debt levels, which have topped 160pc of disposable income, represent the biggest threat to the country's economic stability according to the central bank. The country had the second-biggest jump in household debt-to-income ratios of any country other than Greece between 2007 and 2014.

[GostHacked]

Again, depends on the person. The prices of detached homes is insane today but condos are still reasonable in most cities although it is not clear that purchasing one is smarter than renting one.

I don't think it is a good alternative. Even if you pay off the condo, now you still have monthly condo fees.

[eyeball]

Over the past 10 years we've paid out something like $100 billion in interest.

To who, and what did they do with all that money?

[GostHacked]

To who, and what did they do with all that money?

I keep hearing where it comes from, but not a peep about where it actually goes. But all we established here is that someone benefits and someone loses. More losers than benefactors.

[overthere]

Maybe they gave the $100 million billion to needy Montreal ad agencies. It would not be the first time a Liberal Government did that.

Edited March 11, 2015 by overthere

[John]

I don't think it is a good alternative. Even if you pay off the condo, now you still have monthly condo fees.

While you still have the fees...at least you have something that will more than likely have appreciated in value...at least in the bigger markets. With renting you only pay off your landlords mortgage every month.

[John]

To who, and what did they do with all that money?

http://en.wikipedia.org/wiki/Ontario_government_debt

The Ontario debt consists of domestic bonds, international bonds, treasury bills & U.S. commercial paper and non-public debt. As of September 30, 2013 the breakdown is as below:^[7]

• Domestic Bonds - $189.6B (66%)
• International Bonds - $65.5B (23%)
• Treasury Bills & U.S. Commercial Paper - $19.7B (7%)
• Non-Public Debt - $13.3B (4%)

[GostHacked]

http://en.wikipedia.org/wiki/Ontario_government_debt

The Ontario debt consists of domestic bonds, international bonds, treasury bills & U.S. commercial paper and non-public debt. As of September 30, 2013 the breakdown is as below:^[7]

• Domestic Bonds - $189.6B (66%)
• International Bonds - $65.5B (23%)
• Treasury Bills & U.S. Commercial Paper - $19.7B (7%)
• Non-Public Debt - $13.3B (4%)

In the end this means nothing to the average Canadian. Does the government have enough money on hand to cash in Domestic Bonds if people decide to cash them in? How much of our debt is owed to foreign governments? WHY do we owe foreign governments? What does it mean for ME.

Each time someone gives me an answer I have more questions about it all.

[DFCaper]

I think government debt is acceptable during bad times, but governments should be paying it down during the good times like we are in today. That way borrowing during the next recession won't hurt us so much.

I think the biggest threat to western culture is our culture of debt. If people were more adverse to debt, then maybe people wouldn't think we are in the middle of tough times.. It seems to me to be difficult to create wealth when you are using all of your money to service your debts for stuff you already bought.

We definitely have a culture that makes it acceptible to buy items that we can't afford. How many iPhones would be sold if people who don't have the $1000 to purchase one upfront, couldn't finance them oer 2-3 years with a phone plan?

[TimG]

In the end this means nothing to the average Canadian. Does the government have enough money on hand to cash in Domestic Bonds if people decide to cash them in?

If someone does not want to hold a bond they sell it to someone else. If too many people want to sell bonds the price drops (a.k.a. the effective interest rate rises). If too many people want to buy bonds the price rises (a.k.a. the effective interest rate drops). Bonds themselves cannot be redeemed early and are issued with 10-30 year terms. Governments almost always have enough cash to pay back the subset of bonds that are due in any given year. When they don't you have a crisis like in Greece.

How much of our debt is owed to foreign governments? WHY do we owe foreign governments? What does it mean for ME.

Most Canadian government debt is held by Canadians. Much of the debt held by foreigners is denominated in Canadian dollars. At current levels it is not a huge concern but governments must be diligent about keeping deficits under control.

[GostHacked]

I suspect Canada has also taken on debt from other nations in the same fashion. So you see, it all gets muddied and I understand all of this less and less as time goes on.

[LesActive]

Has the gov't ever touched the principal. Afaik, they've only made payments on the interest. Interestingly, at least to me, is that the BoC can borrow money at interest but the amount incorporating the interest is never created.

[Wilber]

Has the gov't ever touched the principal. Afaik, they've only made payments on the interest. Interestingly, at least to me, is that the BoC can borrow money at interest but the amount incorporating the interest is never created.

Which government? Some have. Some haven't

[LesActive]

Which government? Some have. Some haven't

I was generalizing but I suppose it applies in particular to those governments that borrow to spend instead of securing old debts.

[eyeball]

Has the gov't ever touched the principal. Afaik, they've only made payments on the interest. Interestingly, at least to me, is that the BoC can borrow money at interest but the amount incorporating the interest is never created.

Maybe the dread of it that's always hung over our heads would seem more real if an alien invasion fleet were in orbit demanding repayment or else.

[Wilber]

I was generalizing but I suppose it applies in particular to those governments that borrow to spend instead of securing old debts.

Depends what you mean by "spend". Borrowing to replace a leaky roof on your house and borrowing to take a vacation are both spending.