So Much For Tory Fiscal Stewardship

Wilber · November 12, 2015

But you keep invoking the BoC prime overnight rate when you talk about the Government accruing debt, but sovereign debt interest rates are not a direct factor of central bank rates. They are more affected by credit ratings, which are not directly connected to any central bank rate. Once again you seem to have bought into the analogy to commercial and personal interest rates, and it just doesn't work like that. In fact, sovereign debt can often generate much higher interest rates for a jurisdiction than what private borrowers may experience; for instance Greece, or the other PIIGS during the height of the credit crunch.

A credit rating just determines at what rate you get to borrow. Say you are the government and sell me a 20 year bond for say $20,000 at 2% to finance debt. That's fine for you if you pay it down over the 20 years. If not, you pay me 2% per year on the whole $20,000 for the full 20 years. If in that 20 years interest rates have gone to 5%, you now have to sell me a new bond at 5% to pay off the old one. If you don't pay me 5%, I won't buy it because someone else will.

ToadBrother · November 12, 2015

A credit rating just determines at what rate you get to borrow. Say you are the government and sell me a 20 year bond for say $20,000 at 2% to finance debt. That's fine for you if you pay it down over the 20 years. If not, you pay me 2% per year on the whole $20,000 for the full 20 years. If in that 20 years interest rates have gone to 5%, you now have to sell me a new bond at 5% to pay off the old one. If you don't pay me 5%, I won't buy it because someone else will.

And again, you keep confusing sovereign bond interest rates with other interest rates. The connection between what a sovereign jurisdiction pays in interest is not directly tied to central bank rates.

Wilber · November 12, 2015

And again, you keep confusing sovereign bond interest rates with other interest rates. The connection between what a sovereign jurisdiction pays in interest is not directly tied to central bank rates.

You will pay whatever it takes for people to lend you money.

Smallc · November 12, 2015

First, he is not investing much in infrastructure.

An extra $5B a year - half of the amount he's borrowing.

Edited November 12, 2015 by Smallc

Wilber · November 12, 2015

An extra $5B a year - half of the amount he's borrowing.

Got news for you, paying perpetual interest on debt is not investing by any standard.

Smallc · November 12, 2015

Got news for you, paying perpetual interest on debt is not investing by any standard.

How about paying for an infrastructure deficit with ever increasing inflation?

ReeferMadness · November 12, 2015

Like your post, RM.

One small correction: Harper spent the Liberal surplus he inherited.

OK, fair enough.

I meant to say that the Liberals had already started to spend it by time Harper took over and made a mess of things.

ReeferMadness · November 12, 2015

Structural deficits can be dictated by economic conditions. You don't have to do anything. You guys can pretend the biggest economic crisis since the Great Depression never happened but that won't change the fact that it did. You can also ignore that our deficits steadily declined since the initial shock in 2009. You can ignore that JT's solution is to keep borrowing and hope the economy bails us out. Keep drinking the kool aid boys.

There are a couple of points you seem to dance around. And I think they are pretty much indisputable.

1. Canada's budget was in a surplus when Harper took over.

2. Canada's GDP has recovered from the recession and is now greater than it was before Harper took over.

3. Ergo, if government revenues can't match expenditures, then it's fair to blame them on Harper's idiotic, ideologically driven tax cuts.

4. JT campaigned on a deficit budget so you can agree or disagree but he has a mandate to do it.

5. Harper lied about the state of the finances. He claimed a surplus but he delivered a structural deficit. Ergo, if Trudeau goes over the $10B deficit, Harper deserves some of the blame.

I tried to drink some kool-aid but I found you had already finished it.

Edited November 12, 2015 by ReeferMadness

jacee · November 12, 2015

OK, fair enough.

I meant to say that the Liberals had already started to spend it by time Harper took over and made a mess of things.

Yup true.

.

ToadBrother · November 12, 2015

You will pay whatever it takes for people to lend you money.

And again you keep missing the point. Let me repeat; what determines a sovereign jurisdiction's rate of interest is not the same as what determines what a commercial or personal borrower will pay. You keep talking about future interest rates in a way that makes me think somehow current BoC rates are a direct factor.

Canada is nowhere near a downgrade, even with increased spending. I'm not saying that's an argument for vast borrowing, but since no one is suggesting vast borrowing on a scale that would negatively weigh on our rating, you seem to be talking about something else completely.

Debt is how countries work.

Wilber · November 12, 2015

How about paying for an infrastructure deficit with ever increasing inflation?

You mean as opposed to relying on inflation and low interest rates to keep your debt serviceable?

I'm not saying don't borrow to do something, I'm saying if you do, pay it off.

Lets take my $20,000 20 year bond at 2% and let's say we live in some fantasy land where interest rates stay at 2% forever and never go up.

A rational person would take out a loan and make monthly payments. After 20 years the loan would be retired at a cost of just $4000 interest. Governments not being that bright or honest (something you seem to approve of) sell a bond and pay interest on the whole principle. After 20 years they have paid $8000 in interest and still owe $20,000, after 60 years they have paid $24,000 in interest and still owe the $20,000, on and on forever.

Of course, if interest rates double in the during the first 20 years, so will the amount of interest paid for the following 40 years and you sill still have the same debt to service.

What is it about borrowing 386 billion since Confederation to service 37 billion in debt that you guys don't understand? That's just the amount borrowed, the amount of interest actually paid must be well over a trillion.

Wilber · November 12, 2015

And again you keep missing the point. Let me repeat; what determines a sovereign jurisdiction's rate of interest is not the same as what determines what a commercial or personal borrower will pay. You keep talking about future interest rates in a way that makes me think somehow current BoC rates are a direct factor.

Canada is nowhere near a downgrade, even with increased spending. I'm not saying that's an argument for vast borrowing, but since no one is suggesting vast borrowing on a scale that would negatively weigh on our rating, you seem to be talking about something else completely.

Debt is how countries work.

Keep coming with the weasel words but answer me this. Why are we paying so bloody much every year just to service interest on debt.

Edited November 12, 2015 by Wilber

ToadBrother · November 12, 2015

You mean as opposed to relying on inflation and low interest rates to keep your debt serviceable?

I'm not saying don't borrow to do something, I'm saying if you do, pay it off.

Lets take my $20,000 20 year bond at 2% and let's say we live in some fantasy land where interest rates stay at 2% forever and never go up.

A rational person would take out a loan and make monthly payments. After 20 years the loan would be retired at a cost of just $4000 interest. Governments not being that bright or honest (something you seem to approve of) sell a bond and pay interest on the whole principle. After 20 years they have paid $8000 in interest and still owe $20,000, after 60 years they have paid $24,000 in interest and still owe the $20,000, on and on forever.

Of course, if interest rates double in the during the first 20 years, so will the amount of interest paid for the following 40 years and you sill still have the same debt to service.

What is it about borrowing 386 billion since Confederation to service 37 billion in debt that you guys don't understand? That's just the amount borrowed, the amount of interest actually paid must be well over a trillion.

And again, you seem to confuse sovereign debt and personal debt. It would be almost impossible for a nation of any significant size and population to ever actually pay off all its debts. What counts is the ability to service debt, a complex equation which can't be solved with simplistic formulas like "debt-to-GDP", but measures economic capacity.

Sovereign debt is a different creature with different rules.

Smallc · November 12, 2015

What is it about borrowing 386 billion since Confederation to service 37 billion in debt that you guys don't understand? That's just the amount borrowed, the amount of interest actually paid must be well over a trillion.

And with a continuously growing economy, it becomes almost meaningless.

Wilber · November 12, 2015

And with a continuously growing economy, it becomes almost meaningless.

You mean if we had 30 billion more to spend every year we could just flush it down the toilet because it's almost meaningless?

Wilber · November 12, 2015

And again, you seem to confuse sovereign debt and personal debt. It would be almost impossible for a nation of any significant size and population to ever actually pay off all its debts. What counts is the ability to service debt, a complex equation which can't be solved with simplistic formulas like "debt-to-GDP", but measures economic capacity.

Sovereign debt is a different creature with different rules.

Rules are the same, just takes longer for you to go broke. Unless you just want to print money to cover the debt.

Smallc · November 12, 2015

You mean if we had 30 billion more to spend every year we could just flush it down the toilet because it's almost meaningless?

I think that would be great if we had that money. We don't, unfortunately. What we do have is an infrastructure deficit ranging from between $123B - $700B. It's actually not getting any bigger because of provincial spending. This money will actually allow us to shrink it.

ToadBrother · November 12, 2015

Rules are the same, just takes longer for you to go broke. Unless you just want to print money to cover the debt.

The point is that the rules are not the same.

Wilber · November 12, 2015

The point is that the rules are not the same.

Only in that the IMF might bail a country out while they make it get its act together.

ToadBrother · November 13, 2015

Only in that the IMF might bail a country out while they make it get its act together.

Which happens when the debt ceases to be serviceable. No one seriously imagines that the small amount of debt the Liberals have proposed is going to create that kind of a crisis.

Wilber · November 13, 2015

Which happens when the debt ceases to be serviceable. No one seriously imagines that the small amount of debt the Liberals have proposed is going to create that kind of a crisis.

Never said it would but I'm sure glad you don't look after my finances.

ToadBrother · November 13, 2015

Never said it would but I'm sure glad you don't look after my finances.

And again you confuse personal debt with sovereign debt.

Wilber · November 13, 2015

I think that would be great if we had that money. We don't, unfortunately. What we do have is an infrastructure deficit ranging from between $123B - $700B. It's actually not getting any bigger because of provincial spending. This money will actually allow us to shrink it.

We don't have it because we have never paid anything off. Thats the only reason. Borrowing more will make us owe less.

This coming from someone who doesn't believe in governments actually paying for something. The pig has a new dress and can fly to. Actually I think it is a recycled dress. Heard the same voodoo economics back in the seventies when we started this policy.

Wilber · November 13, 2015

And again you confuse personal debt with sovereign debt.

You love that phrase don't you. Means absolutely nothing. You borrow money, you pay for it until you pay it back. Doesn't matter if you are a sovereign or a peasant. We pay between 25 and 40 billion a year depending on who you believe. That is your money that you pay out of your taxes which buys you nothing. Feeling Royal yet?

ToadBrother · November 13, 2015

You love that phrase don't you. Means absolutely nothing. You borrow money, you pay for it until you pay it back. Doesn't matter if you are a sovereign or a peasant. We pay between 25 and 40 billion a year depending on who you believe. That is your money that you pay out of your taxes which buys you nothing. Feeling Royal yet?

It buys the government the right to borrow money.