Stock market prices

[blueblood]

I agree that I find it strange that people will complain about $10 billion per year deficits while ignoring the increase of household debt to something like $2 trillion. Basically households have been going into debt to bail out the economy thanks to $0 down/40 year amortizations brought in in 2006 and then left unchecked until dropped to 5/35 years and then 5/30 a bit later.

So between this and allowing cash back mortgages and insuring mortgages as you have stated we have had very slack lending for about a decade now.

But that's ok.

The increase in household debt by a trillion goes unmentioned.

But oh noooooeeeesss, ten billion deficit for 3 years!!!!

It's deranged and asinine.

ETA: to bring it back on topic - as debt has spiralled up the savings rate has gone the other way so people are saving less which means less money is going into stocks as compared to housing because we all know houses and condos are an investment that never goes down. Just like I am never sarcastic especially in the previous sentence.

Im pretty sure that the tories saw what was going on with people over leveraging themselves on cheap credit to play keep up with the jones's on their houses and publically said for people to get their heads out of their ass and went and put the brakes somewhat on the madness.

We farm boys learned our lesson from that madness in the 1980s when many took their bath...

And there is a place for using debt financing for growth, unfortunately some people are a lot more risky than others. For example if i want to make a major purchase, i could cut a check, or i can make payments on it with the cash on hand as collateral. Ill do that as it allows me some flexibility in case of an emergency.

But guys borrowing against their house, yikes!! Commodities have a way of fluctuating. In the 80s with making farmland payments, guys were having their land taken away as collateral as the value kept dropping. It was an ugly trap.

Edited October 22, 2015 by blueblood

[dre]

Im pretty sure that the tories saw what was going on with people over leveraging themselves on cheap credit to play keep up with the jones's on their houses and publically said for people to get their heads out of their ass and went and put the brakes somewhat on the madness.

No... They paid lip service to the concept of personal fiscal responsibility but the real signal that the government and banks send to the market is in the rates, and in Canada the ammount of loans actually backed directly by the government. The rates were at historic lows, and the ammount of tax-payer backed mortgages increased by 400 billion dollars.

This is the conservative legacy... MASSIVE DEBT, a gigantic asset bubble, and a hamstrung central bank. They left a ticking timebomb for the liberals.

[Canada_First]

If you want a free stock tip. If Trudeau keeps his promise to fund infrastructure massively then buy up some stock in infrastructure companies, construction companies, etc...lol.

[blueblood]

No... They paid lip service to the concept of personal fiscal responsibility but the real signal that the government and banks send to the market is in the rates, and in Canada the ammount of loans actually backed directly by the government. The rates were at historic lows, and the ammount of tax-payer backed mortgages increased by 400 billion dollars.

This is the conservative legacy... MASSIVE DEBT, a gigantic asset bubble, and a hamstrung central bank. They left a ticking timebomb for the liberals.

The tories have clearly indicated to people to be careful about their debt levels and clawed back the size and term of mortgages. The one tool that helps in this is the canada bank act which wont let people walk away from loans.

However you cant realistically place all of the blame on the tories. There are a bunch of self entitled buffoons who are stupid enough to saddle themselves with this kind of debt instead of sucking it up and renting. People in this generation need to take responsibility for the actions they take. Im sorry if your too stupid and too entitled to take a 35 yr zero down mortgage on a 500,000 house with a 50K salary thats not the govenments fault, thats the person taking oht the loan.

[Bonam]

I agree that I find it strange that people will complain about $10 billion per year deficits while ignoring the increase of household debt to something like $2 trillion. Basically households have been going into debt to bail out the economy thanks to $0 down/40 year amortizations brought in in 2006 and then left unchecked until dropped to 5/35 years and then 5/30 a bit later.

So between this and allowing cash back mortgages and insuring mortgages as you have stated we have had very slack lending for about a decade now.

But that's ok.

The increase in household debt by a trillion goes unmentioned.

But oh noooooeeeesss, ten billion deficit for 3 years!!!

Who says that's ok? Pretty sure most anyone in favor of running balanced budgets and fiscal restraint is also critical of the household debt.

[TimG]

If you want a free stock tip. If Trudeau keeps his promise to fund infrastructure massively then buy up some stock in infrastructure companies, construction companies, etc...lol.

I suspect Trudeau will play the same "bait & switch" that Obama did. All of the "infrastructure" funds will simply be used to supplement public servant unions pay packages.

[Smallc]

I suspect Trudeau will play the same "bait & switch" that Obama did. All of the "infrastructure" funds will simply be used to supplement public servant unions pay packages.

I suspect the premiers wouldn't go along with that even if that was what Trudeau actually wanted.

[msj]

Who says that's ok? Pretty sure most anyone in favor of running balanced budgets and fiscal restraint is also critical of the household debt.

It's one thing to be critical of it and another to actually do something about it.

I expect more than lip service from government.

[Wilber]

What disturbs me is the singling in on the debt to GDP ratio as a reason we can and should borrow. We can, and maybe we should but I have heard nothing from the people advocating it that suggests we should pay back the principle borrowed for capital projects in an orderly and timely manner. The issue seems to end with the assertion that we can borrow and carry the debt for the foreseeable future.

If you say it fast, 30 billion doesn't seem like much but let's put it in perspective. It is 468 times the recent record Lotto 649 payout. It amounts to about $900 of debt for every man, woman and child in the country that must be serviced forever if the principle is not paid back.

[msj]

What disturbs me is the singling in on the debt to GDP ratio as a reason we can and should borrow.

Are you purposely being obtuse?

It has been stated here that there is an infrastructure deficit of at least several hundreds of billions of dollars which you don't care to address.

It has been stated that interest rates are at historical lows and there is slack in the economy so the government could and should pick up this slack with fiscal stimulus.

It has been stated and at least implied that the government has had no problem allowing the private household debt to explode to the tune of hundreds of billions of dollars into something that does nothing for Canada's productivity (housing) while the infrastructure deficit continues to grow. Infrastructure usually improves productivity.

It has also been explained that debt for an entity that lives forever does not necessarily have to be paid back. As the economy grows so do government revenues and so any debt burden diminishes in relative size.

Which then brings us to opportunity cost which has not been specifically mentioned but has been implied.

The reason you do not necessarily pay down debt (as a unending entity) is because the gain of doing something else with those funds may be greater than what is gained by paying down the debt.

This is especially true when interest rates are low.

Instead, all you consider is the debt and the cost while ignoring the asset, the productivity gain, the fiscal stimulus, the squandered opportunity by not addressing the infrastructure deficit etc....

[Wilber]

Are you purposely being obtuse?

It has been stated here that there is an infrastructure deficit of at least several hundreds of billions of dollars which you don't care to address.

It has been stated that interest rates are at historical lows and there is slack in the economy so the government could and should pick up this slack with fiscal stimulus.

It has been stated and at least implied that the government has had no problem allowing the private household debt to explode to the tune of hundreds of billions of dollars into something that does nothing for Canada's productivity (housing) while the infrastructure deficit continues to grow. Infrastructure usually improves productivity.

It has also been explained that debt for an entity that lives forever does not necessarily have to be paid back. As the economy grows so do government revenues and so any debt burden diminishes in relative size.

Which then brings us to opportunity cost which has not been specifically mentioned but has been implied.

The reason you do not necessarily pay down debt (as a unending entity) is because the gain of doing something else with those funds may be greater than what is gained by paying down the debt.

This is especially true when interest rates are low.

Instead, all you consider is the debt and the cost while ignoring the asset, the productivity gain, the fiscal stimulus, the squandered opportunity by not addressing the infrastructure deficit etc....

I'm not saying we shouldn't invest in infrastructure or that we shouldn't borrow to do so. I do say the debt should be retired in an orderly fashion. You just keep coming up with excuses to keep borrowing.

Why do you think our great great grandchildren should be paying for a bridge we built and was torn down before they were even born, plus having to pay for the bridge their parents built to replace it ? How many times should that bridge which no longer exists be paid for?

Why would you think such behaviour is even ethical?

Only an idiot engages in perpetual debt to pay for a depreciating asset.

That is not investing.

[msj]

Why would you think such behaviour is even ethical?

Only an idiot engages in perpetual debt to pay for a depreciating asset.

That is not investing.

Ah, I see.

So now I'm an unethical idiot.

[Wilber]

Ah, I see.

So now I'm an unethical idiot.

I asked why you would think it was ethical?

If you believe in paying forever for something that no longer has any value and may not even exist, well what can I say.

[dialamah]

I'm not saying we shouldn't invest in infrastructure or that we shouldn't borrow to do so. I do say the debt should be retired in an orderly fashion. You just keep coming up with excuses to keep borrowing.

Why do you think our great great grandchildren should be paying for a bridge we built and was torn down before they were even born, plus having to pay for the bridge their parents built to replace it ? How many times should that bridge which no longer exists be paid for?

Trudeau's plan does call for balanced budget in year four, and presumably surpluses going forward, so why wouldn't the debt be paid off in orderly fashion if his plan comes to fruition? Why the assumption that going into debt now means we're saddling the debt on to our descendants?

Although, the G&M today mentioned that the BoC has downgraded the economic outlook from what it was in July when JT came up with his plan, so who knows what'll happen. Even if one of the two balanced-budget parties had gotten in, the world economy could still have played havoc with their plans.

MSJ & Dre, I like reading your posts, I feel like I actually learn stuff that makes sense.

[msj]

I asked why you would think it was ethical?

If you believe in paying forever for something that no longer has any value and may not even exist, well what can I say.

I have already responded - opportunity cost.

It may be cheaper to continue to pay the interest than to raise taxes to pay off the debt.

Or it may be cheaper to continue to pay the interest while using the debt repayment funds to invest in the replacement bridge (for example).

[Wilber]

Trudeau's plan does call for balanced budget in year four, and presumably surpluses going forward, so why wouldn't the debt be paid off in orderly fashion if his plan comes to fruition? Why the assumption that going into debt now means we're saddling the debt on to our descendants?

Although, the G&M today mentioned that the BoC has downgraded the economic outlook from what it was in July when JT came up with his plan, so who knows what'll happen. Even if one of the two balanced-budget parties had gotten in, the world economy could still have played havoc with their plans.

MSJ & Dre, I like reading your posts, I feel like I actually learn stuff that makes sense.

Because only one Prime Minister in the past 65 years has actually left office with less debt. A whopping 4.7$ less. It's a pretty easy assumption to make. If he isn't willing to commit to paying it back up front, I doubt he ever will. He has a plan to build infrastructure. He has no plan to pay for it other than borrow the money and pay interest forever.

[Wilber]

I

I have already responded - opportunity cost.

It may be cheaper to continue to pay the interest than to raise taxes to pay off the debt.

Or it may be cheaper to continue to pay the interest while using the debt repayment funds to invest in the replacement bridge (for example).

So you do think it is OK to pay interest forever on something that doesn't exist. But Oh, maybe we will do better the next time, we will raise money for it's replacement but keep paying for the old one forever. Fat chance.

Edited October 22, 2015 by Wilber

[dialamah]

Because only one Prime Minister in the past 65 years has actually left office with less debt. A whopping 4.7$ less. It's a pretty easy assumption to make. If he isn't willing to commit to paying it back up front, I doubt he ever will. He has a plan to build infrastructure. He has no plan to pay for it other than borrow the money and pay interest forever.

That was Chretien/Martin, wasn't it?

[sharkman]

I

So you do think it is OK to pay interest forever on something that doesn't exist. But Oh, maybe we will do better the next time, we will raise money for it's replacement but keep paying for the old one forever. Fat chance.

Nicely put! Too bad for msj if he doesn't get it. You can call it unethical, and opine on whatever the hell else you want to.

[msj]

I

So you do think it is OK to pay interest forever on something that doesn't exist. But Oh, maybe we will do better the next time, we will raise money for it's replacement but keep paying for the old one forever. Fat chance.

I think it is fine to pay interest forever as long as the cost of the debt burden is less than the opportunity cost related to paying down the debt.

[Bonam]

I think it is fine to pay interest forever as long as the cost of the debt burden is less than the opportunity cost related to paying down the debt.

I'm not convinced that the government can accurately calculate things like opportunity cost. Besides the fact that accurately determining opportunity cost is difficult even for businesses that honestly try to do it, the government is inherently more concerned about optics and political consequences. The economic cost of something might be very high but it might still be expedient politically in the short term. Rather than relying on government to accurately determine complex economic factors and nobly restrain itself from letting political considerations influence its thinking, I think it is better to simply demand that the government not burden future generations with debt unless there is a very very good reason to do so.

Edited October 23, 2015 by Bonam

[Wilber]

I think it is fine to pay interest forever as long as the cost of the debt burden is less than the opportunity cost related to paying down the debt.

No. you just want to borrow money to do the things you want and saddle future generations with paying for it because you don't want to have a plan to pay it back yourself.

You are saying wanting to pay for nothing forever is some sort of financial plan when you have no clue what interest rates are going to be so you have no clue what future costs will be. You say we should borrow now to take advantage of historically low interest rates. OK. but future rates will go higher at some point and that some future generation will be stuck with servicing your debt at those rates is of no interest to you. No need to pay it back before that happens, that's their problem.

Edited October 23, 2015 by Wilber

[Wilber]

That was Chretien/Martin, wasn't it?

Actually it was just Martin but Chretien was the next best with a small increase. Percentage wise, PET was by far the worst but he started from a lower level.

[msj]

I'm not convinced that the government can accurately calculate things like opportunity cost. Besides the fact that accurately determining opportunity cost is difficult even for businesses that honestly try to do it, the government is inherently more concerned about optics and political consequences. The economic cost of something might be very high but it might still be expedient politically in the short term. Rather than relying on government to accurately determine complex economic factors and nobly restrain itself from letting political considerations influence its thinking, I think it is better to simply demand that the government not burden future generations with debt unless there is a very very good reason to do so.

I agree.

However, when the debt to GDP ratio is relatively low, the country is running an infrastructure deficit of 400 - 700 billion, and interest rates are historically low when compared to historically low rates (that is, remove the 70's and 80's from a 100 year chart and see what I mean) I think it is a fair assumption to say that $10 billion deficits per year for 3 years (3% of government revenue each year) is not going to be the end of the world.

It will have no effect on the stock market, little to none on the bond market, and will lead us to fixing up some of the crappy infrastructure that needs fixin' so <shrug> I don't know why people are pulling their hair out over this especially when household debt has been allowed to get out of hand to the tune of hundreds of billions of dollars and for which we, the taxpayers, have guaranteed.

I mean, is it really appropriate for any government to make such a decision that houses only ever go up and taxpayers will never get caught holding the bag?

Does anyone want to make that argument given the US, Fannie and Freddie?

[msj]

No. you just want to borrow money to do the things you want and saddle future generations with paying for it because you don't want to have a plan to pay it back yourself.

---SNIP---

I am going to be a taxpayer for many decades yet, if I'm lucky.

Future generations will also get the good fortune of being taxpayers for many many decades.

We all get to pay (some of us more than others) and we all get to benefit from what has come before us.

I can't explain opportunity cost better than what I have already stated so meh.....

Edited October 23, 2015 by Charles Anthony
---SNIP---