Justin Trudeau, Cash Flow & PR

[August1991]

There are 3 different basic measures of a business: 1. Are Assets greater than Liabilities? (Impossible.) 2. Are Profits greater than Losses? (The ultimate measure of sustainability.) 3. And then, there's Cash Flow.

Is Canada's Cash Flow positive? IME, too many "progressive/liberal" people only look at Cash Flow. They tell me - PR style: "The government has more money coming in than going out... The debt-to-GDP is going down."

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Canada is not a business. Our federal government is not Canada. IMHO, my federal PM should spend my tax money the same way I spend my own money.

[Wilber]

Cash flow isn't positive, that's why they are borrowing.

Actually borrowing is the wrong word. Borrowing something means that eventually you will be giving it back.

Edited April 3, 2016 by Charles Anthony
deleted re-copied [Opening Post]

[Queenmandy85]

Canadians have refused to provide the revenue necessary to maintain the nation over the last several decades. It costs money to maintain a modern nation. Thus, we have no means to defend the country, our transportation system is crumbling, and we are facing the necessity of converting energy production from fossil fuels to non-carbon based sources, ie. nuclear and solar.

[Wilber]

Canadians have refused to provide the revenue necessary to maintain the nation over the last several decades. It costs money to maintain a modern nation. Thus, we have no means to defend the country, our transportation system is crumbling, and we are facing the necessity of converting energy production from fossil fuels to non-carbon based sources, ie. nuclear and solar.

Most of the money being borrowed isn't going toward any of those things.

[msj]

My gawd people, look at a frickin' cash flow statement if you want to discuss this issue:

Cash flow from operations will show you the cash generated from the operations. Under the indirect method, which accountants love because it's easier to create than the direct method , this is net profit/loss plus amortization/depreciation (since that is a "cashless expense") and then adjust for related operating changes for balance sheet items (trade receivables, trade payables, etc).

Then you have your investing section: this is where you use cash flow for things like the purchase of capital assets or other types of investments. This can be money out for the purchase of or money in for the sale of.

Then we have the financing section which will show us debt issued and debt repaid etc.

Add them all up and you have cash flow either negative or positive.

Understanding how the three sections work and the timing of them throughout the year is necessary for any entity.

Most people have no clue about the details but run their households just fine.

Far too many people want to discuss how a government operates, however, and have no understanding of this issue.

Which is why I no longer participate much in these type of discussions.

Can't stand the, well, I'm going to be polite and not say....

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ETA: please note the need to understand the income statement (which comes onto the cash flow statement through the operating section) and the need to understand the interactions on the balance sheet which come though all three sections of the cash flow statement.

That is, if your revenue gets hit at certain times of the year or because the pice of oil is at low levels, for example, then your revenue can go down while your expenses (EI for example) start to go up (after a delay). This can create an excess of expenses over revenues (I.e. net loss) which carries over to the top of the cash flow statement.

This in turn, leads to all kinds of implications for the rest of the statement: debt issuance, asset sales or purchases etc etc.

All the while keeping in mind that interest rates are at historically low levels and could go negative (in which case it would be irresponsible for the government to not borrow).

Edited April 3, 2016 by msj

[Wilber]

If you are adding debt that you have no intention of paying off, your cash flow isn't positive.

[Argus]

There are 3 different basic measures of a business: 1. Are Assets greater than Liabilities? (Impossible.)

I'm pretty sure Apple's assets are a lot greater than its liabilities.

[msj]

41% of Canada is federally controlled crown land. Tell us again how assets aren't greater than liabilities.

Explain to us how the selling of some of that land would show up on a financial statement.

That is, debt and deficits must also be understood in context of a complete understanding of a complete set of financial statements.

My point is that few people are capable of this since many of us do not understand how the moving parts work.

[Wilber]

Selling your assets to pay your bills isn't positive cash flow. Being able to borrow to pay your bills isn't positive cash flow, it just means someone else is willing to pay them for you. For a price.

[eyeball]

41% of Canada is federally controlled crown land. Tell us again how assets aren't greater than liabilities.

Pollution, over-drawing resources, overloading sink-resources. Without a column on the balance statement that reflects these we're just guessing everything is still in the black.

[msj]

You see, Wilber, your statement is why I try to stay out of these discussions. But since I consider you a decent chap, let's consider this:

Of course selling assets can be cash flow positive. Just like issuing debt can lead you to b cash flow positive.

That is, cash goes up while an asset goes down or a liability goes up.

Yes, we agree that sustainably an entity cannot forever sell assets or issue debt without considering the operations part of the cash flow statement (which leads back to the income statement and balance sheet).

My point, however, is that for longish periods of time these things do happen and are just fine as long as one has a masterful understanding of the workings and moving parts of finances.

99% of people do not have even a rudimentary understanding of the moving parts so they just go back to the "rule of thumb" that "debt bad, surpluses good" without appreciating other contexts such as automatic stabilizers creating deficits due to reduced revenue and increased expenses, and the swapping of deficits between an infrastructure deficit (deferred repairs and/or investment in infrastructure) and an operating deficit, for example.

[msj]

Pollution, over-drawing resources, overloading sink-resources. Without a column on the balance statement that reflects these we're just guessing everything is still in the black.

Yes, I agree this needs to be considered too amongst many other things.

I wish we could tax fossil fuels on the basis of their full environmental and other costs (wars).

To a certain extent the wars are priced into the taxes I pay but I'd much rather be paying the price at the pump as to change my behaviour.

Even some of the environmental costs (a pittance, to be sure) are priced into my taxes to the extent that the government continues to subsidize businesses by paying for certain cleanups.

[eyeball]

Yes, I agree this needs to be considered too amongst many other things.

Thank you for that.

I normally don't see much point in these sorts of threads either given the absence of a fuller cost accounting that actually reflects reality.

[dre]

Selling your assets to pay your bills isn't positive cash flow. Being able to borrow to pay your bills isn't positive cash flow, it just means someone else is willing to pay them for you. For a price.

Sigh...

Selling assets results in positive cash flow if the money raised from the sale is greater than the cost of keeping the asset. If the money raised is less then the carrying cost then the sale resulted in a negative cash-flow.

[Wilber]

You see, Wilber, your statement is why I try to stay out of these discussions. But since I consider you a decent chap, let's consider this:

Of course selling assets can be cash flow positive. Just like issuing debt can lead you to b cash flow positive.

That is, cash goes up while an asset goes down or a liability goes up.

Yes, we agree that sustainably an entity cannot forever sell assets or issue debt without considering the operations part of the cash flow statement (which leads back to the income statement and balance sheet).

My point, however, is that for longish periods of time these things do happen and are just fine as long as one has a masterful understanding of the workings and moving parts of finances.

99% of people do not have even a rudimentary understanding of the moving parts so they just go back to the "rule of thumb" that "debt bad, surpluses good" without appreciating other contexts such as automatic stabilizers creating deficits due to reduced revenue and increased expenses, and the swapping of deficits between an infrastructure deficit (deferred repairs and/or investment in infrastructure) and an operating deficit, for example.

If cash flow just means the ability to meet your obligations by any means, I would agree with you but that isn't what is important here. At least 2/3 of the increase in spending is on entitlement programs we don't have the revenues to support, not investment in infrastructure and green initiatives.

To me, all this debt to GDP ratio garbage is just that. When Justin's dad started us down this debt spiral, our debt to GDP was about 17% and it peaked at around 60% in the early nineties, largely due to high interest rates and resulted in the slash and burn years under Chretien/Martin. Now we have a debt to GDP ration of around 32%, historic low interest rates and we still can't balance a budget. When you add in provincial and municipal debt (never mind personal debt), we aren't in that good a shape at all. With the projected increase in federal borrowing over the next five years with no end to the borrowing in sight and if interest rates don't rise, GDP will have to increase by 20% in that period just for us to stay where we are today.

It's pretty clear to me that Justin made a bunch of promises with no clue how to pay for them. He still doesn't but is going ahead with them anyway. But "the deficit will look after itself". Right.

Edited April 3, 2016 by Wilber

[Wilber]

Sigh...

Selling assets results in positive cash flow if the money raised from the sale is greater than the cost of keeping the asset. If the money raised is less then the carrying cost then the sale resulted in a negative cash-flow.

And when you have no assets left your problem goes away, right?

[Wilber]

My father said to me once and I have since found it out to be true. When he was young and working, it was all about investing in the future and building equity. When he retired, it was all about cash flow. This country is not a retiree with a known limited lifespan.

[dre]

If cash flow just means the ability to meet your obligations by any means, I would agree with you but that isn't what is important here. At least 2/3 of the increase in spending is on entitlement programs we don't have the revenues to support, not investment in infrastructure and green initiatives. To me, all this debt to GDP ratio garbage is just that. When Justin's dad started us down this debt spiral, our debt to GDP was about 17% and it peaked at around 60% in the early nineties, largely due to high interest rates and resulted in the slash and burn years under Chretien/Martin. Now we have a debt to GDP ration of around 32% and we still can't balance a budget. When you add in provincial and municipal debt (never mind personal debt), we aren't in that good a shape at all. With the projected increase in federal spending over the next five years with no end to the borrowing in sight and if interest rates don't rise, GDP will have to increase by 20% in that period just for us to stay where we are.

It's pretty clear to me that Justin made a bunch of promises with no clue how to pay for them. He still doesn't but is going ahead with them anyway. But "the deficit will look after itself". Right.

Justin's dad didn't start our debt spiral. It was started by the end of Bretton Woods and the removal of obstacles to monetary expansion, and the same thing happened in every industrialized nation.

[August1991]

That is, if your revenue gets hit at certain times of the year or because the pice of oil is at low levels, for example, then your revenue can go down while your expenses (EI for example) start to go up (after a delay). This can create an excess of expenses over revenues (I.e. net loss) which carries over to the top of the cash flow statement.

This in turn, leads to all kinds of implications for the rest of the statement: debt issuance, asset sales or purchases etc etc.

All the while keeping in mind that interest rates are at historically low levels and could go negative (in which case it would be irresponsible for the government to not borrow).

msj, I have to agree with you - except that's not my point.

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About 35% of Canadians pay no tax at all. ("These" people get a GST refund or other transfers... )

For these voters, a politician can spend money - because these voters don't care. It's not their money.

And this is my point; I fear the underlying success of demagogues such as Justin Trudeau and Barack Obama, but I fear the future even more.

Edited April 5, 2016 by August1991

[August1991]

I'm pretty sure Apple's assets are a lot greater than its liabilities.

Apple? Dunno. But given a certain shareholder's equity at Facebook, I'm pretty sure the numbers there balance. Edited April 5, 2016 by August1991

[Argus]

Justin's dad didn't start our debt spiral.

Demonstrably false. You need only look at what our debt was when he was elected vs what it was when he was finally kicked out.

[Wilber]

Apple? Dunno. But given a certain shareholder's equity at Facebook, I'm pretty sure the numbers there balance.

Apple pays a dividend and it doesn't borrow money to do it.

[dre]

Demonstrably false. You need only look at what our debt was when he was elected vs what it was when he was finally kicked out.

No its not false at all. You're ignoring the big picture and focusing on your usual boring obsession with identity politics and mindless partisan hackery.

The move towards deficit financing was a global trend that started as soon as obstacles to monetary expansion were removed, and took place in every developed nation on the planet. Blaming this on a particular Canadian politician is really just stupid.

The rules of the game changed.

[Argus]

No its not false at all. You're ignoring the big picture and focusing on your usual boring obsession with identity politics and mindless partisan hackery.

That's amusingly ironic coming from you. And my 'obsession' is with numbers, which you appear to be desperately trying to avoid in your need to exonerate Trudeau.

[dre]

That's amusingly ironic coming from you. And my 'obsession' is with numbers, which you appear to be desperately trying to avoid in your need to exonerate Trudeau.

There's no need to exonerate anyone. Nobody with more than about 50 IQ is going to take this moronic nonsense seriously anyways. Obviously trying to understand the global trend towards deficit financing that started with the end of BW is not as fun for you as trying to blame it all on one of your favorite political boogeymen.