msj Posted October 20, 2015 Report Share Posted October 20, 2015 You will end up having to finance the 30 billion at those same rate if you have no plan to actually pay it off when those bonds become due. Funny how you will only consider the liability/expense side while completely ignoring the asset/revenue side. To the extent that infrastructure spending makes Canada more productive some of that spending will come back to the government in the form of taxes (rather than, say, EI payments, or welfare payments). Throw in the multiplier effect, throw in improved productivity for the economy etc etc and you have an investment where the return > the cost over the long run. This is how railways and highways and dams got built and these are the reasons Canada is a first world country. Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Funny how you will only consider the liability/expense side while completely ignoring the asset/revenue side. To the extent that infrastructure spending makes Canada more productive some of that spending will come back to the government in the form of taxes (rather than, say, EI payments, or welfare payments). Throw in the multiplier effect, throw in improved productivity for the economy etc etc and you have an investment where the return > the cost over the long run. This is how railways and highways and dams got built and these are the reasons Canada is a first world country. The banks are very conservative when it comes to the effect on GDP, between .1 and .5% depending on the source and that is just based on campaign promises, not details. We won't really know anything until they bring down a budget. I don't ignore it any more than you ignore the consequences of carrying debt, probably less as a matter of fact. Quote Link to comment Share on other sites More sharing options...
msj Posted October 20, 2015 Report Share Posted October 20, 2015 The banks are very conservative when it comes to the effect on GDP, between .1 and .5% depending on the source and that is just based on campaign promises, not details. We won't really know anything until they bring down a budget. I don't ignore it any more than you ignore the consequences of carrying debt, probably less as a matter of fact. Cite? Quote Link to comment Share on other sites More sharing options...
dre Posted October 20, 2015 Report Share Posted October 20, 2015 (edited) You will end up having to finance the 30 billion at those same rate if you have no plan to actually pay it off when those bonds become due. That depends what kind of bonds you sell. You threw out the 2% number, and you dont pay that much interest on bonds unless it takes 20+ years for them to mature. Shorter yeild bonds yield as low as .35%. Edited October 20, 2015 by dre Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Cite? http://www.bnn.ca/News/2015/10/20/Bay-Street-sees-Trudeaus-stimulus-strategy-boosting-Canadas-economy.aspx Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 That depends what kind of bonds you sell. You threw out the 2% number, and you dont pay that much interest on bonds unless it takes 20+ years for them to mature. Shorter yeild bonds yield as low as .35%. I'm not talking about the bonds you issue today, I'm talking about interest rates you will have to refinance at when they come due, if you don't pay off the principal. You assume there will be some great increase in GDP without an increase in interest rates. That is not a good strategy. Quote Link to comment Share on other sites More sharing options...
ToadBrother Posted October 20, 2015 Report Share Posted October 20, 2015 I'm not talking about the bonds you issue today, I'm talking about interest rates you will have to refinance at when they come due, if you don't pay off the principal. You assume there will be some great increase in GDP without an increase in interest rates. That is not a good strategy. Canada has remained in good economic condition even carrying a significant debt. Once again we see the problem of comparing sovereign debt to household debt. Quote Link to comment Share on other sites More sharing options...
msj Posted October 20, 2015 Report Share Posted October 20, 2015 http://www.bnn.ca/News/2015/10/20/Bay-Street-sees-Trudeaus-stimulus-strategy-boosting-Canadas-economy.aspx Thanks for that. A bit weak - only looks at the possible direct impact over the next year rather than the cumulative impact over the lifespan of the debt and the asset. It is the lifecycle of the debt/asset that I'm interested in. Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Canada has remained in good economic condition even carrying a significant debt. Once again we see the problem of comparing sovereign debt to household debt. Bond holders threatened to pull the plug on Canada in the early nineties because of its debt. They said, sorry folks, we aren't buying your debt any more until you get your act together. I keep hearing that things are different now, I heard it just before the tech bubble burst and prior to 2008. As I said before, the only difference between the two is governments can print money and impose taxes, both of which can be self defeating when it comes to dealing with debt. The first drives inflation which will push interest rates up and the other restricts the economy in order to service that debt. http://www.huffingtonpost.ca/charles-lammam/government-debt-interest_b_4564171.html Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Thanks for that. A bit weak - only looks at the possible direct impact over the next year rather than the cumulative impact over the lifespan of the debt and the asset. It is the lifecycle of the debt/asset that I'm interested in. Me to because the longer the lifetime of the debt, the more expensive your asset becomes. Quote Link to comment Share on other sites More sharing options...
Smallc Posted October 20, 2015 Report Share Posted October 20, 2015 Bond holders threatened to pull the plug on Canada in the early nineties because of its debt. Our economy has tripled in size since then. There's a difference. Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Our economy has tripled in size since then. There's a difference. I know, things are different now. The old rules don't apply, we are smarter now. Quote Link to comment Share on other sites More sharing options...
Smallc Posted October 20, 2015 Report Share Posted October 20, 2015 I know, things are different now. The old rules don't apply, we are smarter now. Not that I endorse it, but what I'm saying is that its possible to carry a far larger debt load without problem. Quote Link to comment Share on other sites More sharing options...
dre Posted October 20, 2015 Report Share Posted October 20, 2015 I'm not talking about the bonds you issue today, I'm talking about interest rates you will have to refinance at when they come due, if you don't pay off the principal. You assume there will be some great increase in GDP without an increase in interest rates. That is not a good strategy. Yup we dont know what interest rates will be in the future, although we do know that governments and banks today have a very strong disposition towards low rates, and they will probably only raise them if we get strong economic growth. And so far is HAS been a good strategy. Thats how the entire western world was built. Quote Link to comment Share on other sites More sharing options...
dre Posted October 20, 2015 Report Share Posted October 20, 2015 Canada has remained in good economic condition even carrying a significant debt. Once again we see the problem of comparing sovereign debt to household debt. Canada has not remained in good economic condition at all. Overly easy credit conditions for way too long has encouraged asset bubbles to form in the economy, created very high levels of household debt, and left the central bank with little in the way of guns to fire if unforseen problems occur. Canada actually looks quite a bit like the US did in 2006. Our economy is a house of cards. Quote Link to comment Share on other sites More sharing options...
msj Posted October 20, 2015 Report Share Posted October 20, 2015 Canada actually looks quite a bit like the US did in 2006. Our economy is a house of cards. This is very true - our debt to GDP is ~ 35-40% as was the US. Our household indebtedness is something like 165% of income which is slightly higher than what they were showing (although, to be fair, our number appears to include indebtedness amongst sole proprietorships/partnerships whereas the US number excludes this type of business debt). Nevertheless, I am very nervous about our situation and hope that it can deflate over a period of time where the US economy is doing well so that Canada isn't hurt too badly. But that could mean anything - we could stagnate for decades like Japan. We could have minor recessions punctuated by tepid growth for decades. It may be better to have a hard recession and get it over with but that has its own risk/rewards too. Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Yup we dont know what interest rates will be in the future, although we do know that governments and banks today have a very strong disposition towards low rates, and they will probably only raise them if we get strong economic growth. And so far is HAS been a good strategy. Thats how the entire western world was built. It hasn't been a strategy, it has resulted in record personal debt levels where people are so leveraged that raising rates will be a disaster. They will have to raise them if we gat strong growth in order to curb inflation but higher rates are in inflationary in their own right, so the bubble bursts and the defaults start happening. But I know, things are different now and debt is good. Quote Link to comment Share on other sites More sharing options...
ToadBrother Posted October 20, 2015 Report Share Posted October 20, 2015 But I know, things are different now and debt is good. Pretty much all the trappings of modern society have been built with debt. Quote Link to comment Share on other sites More sharing options...
dre Posted October 20, 2015 Report Share Posted October 20, 2015 It may be better to have a hard recession and get it over with but that has its own risk/rewards too. Quite possibly, but the government and the BOC have a strong commitment to policies aimed at avoiding that. I think you are going to see continued stimulus, both in the form of things like infrustructure programs, and continued monetary stimulus (low rates/easy credit). Problem is that will further inflate the housing and household debt bubbles. Maybe what could work is a large stimulus spending program in conjuntion with a series of small rate hikes. In any case you are going to see deficits until the next economic boom no matter who is in charge. Quote Link to comment Share on other sites More sharing options...
-TSS- Posted October 20, 2015 Report Share Posted October 20, 2015 Btw, as there are various time-zones in Canada the eastern provinces close their polls earlier than the western ones, right? If so do they start publishing the results of the eastern provinces while the voting is still going on in the west? Quote Link to comment Share on other sites More sharing options...
Michael Hardner Posted October 20, 2015 Report Share Posted October 20, 2015 Yes, and this has been a sore point in the past Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 Pretty much all the trappings of modern society have been built with debt. And it is a house of cards we have come to treat as normal. Quote Link to comment Share on other sites More sharing options...
The_Squid Posted October 20, 2015 Report Share Posted October 20, 2015 Btw, as there are various time-zones in Canada the eastern provinces close their polls earlier than the western ones, right? If so do they start publishing the results of the eastern provinces while the voting is still going on in the west? They released results for the first time ever before the western polls closed. Too hard to control social media. There are 6 time zones I think... Pacific 0 Mountain +1 Central+1 Eastern +1 Atlantic +1 NFLD +0.5 Yes, Newfoundland is an extra half hour! Quote Link to comment Share on other sites More sharing options...
ToadBrother Posted October 20, 2015 Report Share Posted October 20, 2015 NFLD +0.5 Yes, Newfoundland is an extra half hour! I remember that, because Wayne and Shuster uses to come on at 8 o'clock, 8:30 in Newfoundland! Quote Link to comment Share on other sites More sharing options...
Wilber Posted October 20, 2015 Report Share Posted October 20, 2015 One way would be not to release the results until the next day. People out west would have to get up realy early but everyone would get the news at the same time. Quote Link to comment Share on other sites More sharing options...
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