Tag Archives: debt

China’s latest debt filled adventure: Regional Transportation Hubs

50 cities in China are all racing to become regional transportation hubs.

More than 50 mainland cities have answered Beijing’s call for cleaner economic growth with plans for aviation hubs – airports clustered with industrial zones.

They hope the projects will attract investment in the logistics, high-technology and finance sectors, the sort of businesses Beijing is encouraging as it seeks to move the economy away from an over-reliance on smoke-stack industries.

But critics argue the projects will exacerbate the problem of debt-fuelled construction, which local authorities have used for years to boost their economies.

Such “plans often start high key, but end poorly”, government researcher Wang Jun said.

“It is not necessarily a good thing for the whole nation, as so much investment will often lead to overcapacity and increase local government debts,” said Wang, who works at the China Centre for International Economic Exchanges. “There are already signs of redundant investment, as some regions in China have too many airports, which are not in full operation.”

Wang Xiaohua, an aviation consultant at Kent Ridge Consulting in Fujian, said developing an aviation hub involved more than simply building an airport.

It first of all required minimum annual passenger flows of 10 million and cargo volume of 200,000 tonnes, she said. Only Beijing, Shanghai, Guangzhou, Chengdu, Shenzhen and Kunming met that criteria last year.

The mainland will need more airports as the economy grows, but profits are elusive. Of the mainland’s 183 airports, 143 lose money, data from the Civil Aviation Administration of China shows. That suggests that more than 60 of the 80 new airports envisioned in the latest five-year plan to 2015 will end up in the red.

More then one economist has said that the country whose debt we all should be working about is China and articles like this do little to convince people otherwise.

How Canada neighbor became a rogue, reckless petrostate.

From Foreign Policy of all places 

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For decades, the world has thought of Canada as America’s friendly northern neighbor — a responsible, earnest, if somewhat boring, land of hockey fans and single-payer health care. On the big issues, it has long played the global Boy Scout, reliably providing moral leadership on everything from ozone protection to land-mine eradication to gay rights. The late novelist Douglas Adams once quipped that if the United States often behaved like a belligerent teenage boy, Canada was an intelligent woman in her mid-30s. Basically, Canada has been the United States — not as it is, but as it should be.

But a dark secret lurks in the northern forests. Over the last decade, Canada has not so quietly become an international mining center and a rogue petrostate. It’s no longer America’s better half, but a dystopian vision of the continent’s energy-soaked future.

That’s right: The good neighbor has banked its economy on the cursed elixir of political dysfunction — oil. Flush with visions of becoming a global energy superpower, Canada’s government has taken up with pipeline evangelists, petroleum bullies, and climate change skeptics. Turns out the Boy Scout’s not just hooked on junk crude — he’s become a pusher. And that’s not even the worst of it.

With oil and gas now accounting for approximately a quarter of its export revenue, Canada has lost its famous politeness. Since the Conservative Party won a majority in Parliament in 2011, the federal government has eviscerated conservationists, indigenous nations, European commissioners, and just about anyone opposing unfettered oil production as unpatriotic radicals. It has muzzled climate change scientists, killed funding for environmental science of every stripe, and in a recent pair of unprecedented omnibus bills, systematically dismantled the country’s most significant long-cherished environmental laws.

The author of this transformation is Prime Minister Stephen Harper, a right-wing policy wonk and evangelical Christian with a power base in Alberta, ground zero of Canada’s oil boom. Just as Margaret Thatcher funded her political makeover of Britain on revenue from North Sea oil, Harper intends to methodically rewire the entire Canadian experience with petrodollars sucked from the ground. In the process he has concentrated power in the prime minister’s office and reoriented Canada’s foreign priorities. Harper, who took office in 2006, increased defense spending by nearly $1 billion annually in his first four years, and he has committed $2 billion to prison expansion with a “tough on crime” policy that ignores the country’s falling crime rate. Meanwhile, Canada has amassed a huge federal debt — its highest in history at some $600 billion and counting.

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Liberal critics like to say that Harper’s political revolution caught many Canadians, generally a fat and apathetic people, by surprise — a combination of self-delusion and strategic deception. That may be true, but though Canadians live in high latitudes, they’re not above baser human instincts — like greed. Harper is aggressively pushing an economic gamble on oil, the world’s most volatile resource, and promising a new national wealth based on untapped riches far from where most Canadians live that will fill their pocketbooks, and those of their children, for generations. With nearly three-quarters of Canadians supporting oil sands development in a recent poll, Harper seems to be selling them on the idea.

It gets better

THE SINGLE-MINDED PURSUIT of this petroproject has stunned global analysts. The Economist, no left-wing shill, characterized Harper, the son of an Imperial Oil senior accountant, as a bully “intolerant of criticism and dissent” with a determined habit of rule-breaking. Lawrence Martin, one of Canada’s most influential political commentators, says that Harper’s “billy-club governance” has broken “new ground in the subverting of the democratic process.” Conservative pollster Allan Gregg has described Harper’s agenda as an ideological assault on evidence, facts, and reason.

To be fair, Harper’s government does have a plan for climate change — pumping the problem to the United States and/or China. Oil sands crude transported to the United States by the proposed Keystone XL pipeline, for example, could over a 50-year period increase carbon emissions by as much as 935 million metric tons relative to other crudes. And the planned $5.5 billion Northern Gateway pipeline from Alberta to the Pacific Ocean would result in up to 100 metric tons of carbon dioxide emissions a year, from extraction and production in Canada to combustion in China — more than British Columbia’s total emissions in 2009. The 2012 National Inventory Report by Environment Canada, the country’s environmental department, actually boasts that Canada has partly reduced overall emission intensity in the oil sands “by exporting more crude bitumen.”

All this underscores Canada’s new reality: Just about any kind of rational evidence has now come under assault by a government that believes that markets — and only markets — hold the answers. Any act that industry regards as an obstacle to rapid mineral extraction or pipeline building has been rewritten with a Saudi-like flourish. One massive omnibus budget bill alone changed 70 pieces of legislation, gutting, for example, the Fisheries Act, which directly prohibited the destruction of aquatic-life habitats but stood in the way of the Northern Gateway pipeline, which must cross 1,000 waterways en route to the Pacific Ocean. Meanwhile, funding for Canada’s iconic park system has been cut by 20 percent in what critics have called a “lobotomy.” The CBC, the respected state broadcaster long scorned by Harper as an independent check on power, has suffered a series of cutbacks. The Health Council of Canada, which once ensured national health standards and innovation across Canada’s 13 provinces and territories, also got the ax. Furthermore, with the élan of a Middle Eastern petroprince, Harper appointed the head of his security detail to be ambassador to Jordan. And he did it all with nary a peep from your average Canadian.

More than a decade ago, American political scientist Terry Lynn Karl crudely summed up the dysfunction of petrostates: Countries that become too dependent on oil and gas riches behave like plantation economies that rely on “an unsustainable development trajectory fueled by an exhaustible resource” whose revenue streams form “an implacable barrier to change.” And that’s what happened to Canada while you weren’t looking. Shackled to the hubris of a leader who dreams of building a new global energy superpower, the Boy Scout is now slave to his own greed.

I would argue some of these points.  Canadian’s have risen up through Idle No More and we have protested much of what is going on.  The issue seems to be that neither oppositon party seems to be able to get any traction on these issues and articulate them in a way where it hurts the Conservatives until recently.

Column: Focus Campaign On Real Issues

My latest in The StarPhoenix

When I was growing up, the United States was larger than life.

It was the peak of the Cold War and we thought at the time only Ronald Reagan, the United States military and our Canada Cup hockey team was standing between us and the evil Soviets.

Fast forward and I am now reading that much of the U.S. Navy is rusting out because they can’t afford maintenance or spare parts (how very Canadian of them).

S & P downgraded the U.S credit rating, and the government just cut $900 billion dollars from its annual budget.

Many economists think this could send the country back into recession. China is now saying it is growing tired of buying up U.S. debt.

In more tangible terms, one third of American high school students don’t graduate or graduate late. In 2005 the American Society of Civil Engineers released a report card on U.S. infrastructure, giving the U.S. a D, with the highest mark being C+ for solid-waste handling.

One in five Americans are now on food stamps. The country no longer looks so large or powerful.

Europe is in worse trouble. Greece seems about to topple, Portugal and Spain are teetering, and Italy’s debt is 120 per cent of its GDP – around $3 trillion.

Former British prime minister Gordon Brown said that he sees G20 and IMF intervention coming to the continent very soon.

In Asia, China is battling inflation at home, which is generally fought with higher interest rates and a reduced flow of investment capital.

If Goldman Sachs is right and the United States does head into another recession, Saskatchewan will probably escape this downturn in a similar way to how we did the last one. Demand for our potash, oil, and food will remain constant if not increase, which means maintaining the status quo will be pretty tempting.

Foreign investment dollars will tighten up, however. Expect tourism and manufacturing to face some challenges due to a weak U.S. dollar and foreign markets struggling because of austerity programs abroad.

Despite our strengths and good luck, Saskatchewan is a $46-billion conomy in a $62-trillion world, which means if the world markets convulse and shudder, we will feel it.

While we can’t totally avoid what is happening out there, we can take this time to figure out how to come out ahead. Former prime minister Paul Martin told the Globe and Mail recently that Canada will attract the best and brightest from around the world because of our stability. He also added that investments in infrastructure and education would continue to push the Canadian advantage.

We have the time to figure out how to make the right investments. It took Canada and Saskatchewan almost a decade to find our way out from our economic crises of the 1990s, and expect it to take at least that long for the U.S. to recover.

Saskatchewan elections are typically pretty mundane affairs. We tend to look at election issues and promises for the short-term view. We have an election coming up in November that doesn’t have many issues that either party seems to be able to use.

Instead of creating fictional quotes for radio ads, why not talk about some of the more substantial issues facing the future of the province? What should Saskatchewan look like in 2031 and how do we get there?

We need to ask what it will take to attract the top talent to Saskatchewan. How do we create an atmosphere of innovation and entrepreneurship in a province historically dominated by Crown corporations?

What role does the University of Saskatchewan play in our future and what resources does it need to fill that role? Do we have industries or technologies where targeted investment would allow them to take off ?

What do race relations look like in 2031? Are our public schools preparing children adequately for the future?

How are we going to pay for it? Do we use non-renewable royalties to fund government operations now or should we be creating our own version of Alberta’s heritage fund once the oil and other nonrenewables are gone?

I guess the first question we should ask is: "Are we are ready to have an election about real issues or should we settle for one dominated by fear mongering, childish stunts and ridiculous debates?"

I would prefer forwardlooking election platforms and some real vision from both parties to figure out where we are going and how will we get there.

Times like this only come by once in a lifetime.

© Copyright (c) The StarPhoenix

A Primer on the U.S. Debt Ceiling

A great primer from the Washington Post’s Ezra Klein.

What happens if we don’t raise the debt ceiling but continue to pay interest on our bonds? This is an option known as “prioritization.” The Bipartisan Policy Center released a reportattempting to think through how this would work in practice, as it has never been attempted before. The raw numbers are chilling: In August, the federal government would have to cut expenditures by about $134 billion, or 10 percent of the month’s GDP. If it chose, for instance, to fund Medicare, Medicaid, Social Security, supplies for the troops and interest on our bonds, it would have to stop funding every other part of the federal government. The drop in demand, when coupled with the turmoil in the markets and the general financial uncertainty, would undoubtedly throw the economy back into a recession. Also keep in mind that we have to roll over $500 billion in debt that month, and if there was uncertainty about how we were going to pay our bills, it is not clear we could find buyers for our debt at anything less than an exorbitant rate. In this way, “prioritization” could actually increase the deficit.

What happens if we stop paying the interest on our debt? This is too scary to consider for any serious length of time. Treasury securities sit at the base of the global financial system. They are considered so safe that the interest rate on Treasuries is called the “riskless rate of return,” as the market assumes there is no chance of default under any circumstances. Almost all other types of debt — mortgages, credit card, auto loans, business loans, hospital bonds, etc. — are yoked to Treasuries. Almost all major financial players hold substantial portfolios of Treasuries or Treasury-related debt in order to buffer themselves against financial shocks. Consider that the 2007 financial crisis was caused by the market realizing it had to reassess the risk of bonds based on subprime mortgages. If the market has to reassess the risk of Treasuries, the resulting financial crisis will be beyond anything we’ve ever seen in this country.

Do we need a debt ceiling? Strictly speaking, no. The debt ceiling is unique to America. In other countries, when the legislature passes a law, the Treasury is given automatic authority to carry it out. A number of former Treasury Secretaries have said it should be abolished, including Larry Summers, who said, “I think that given that Congress has to approve all spending and all tax changes, there is not much logic to the debt ceiling.”

Ten Trillion & Counting

Watch the full episode. See more FRONTLINE.

PBS has an exceptional program on the U.S. national debt and it’s implications for the future of not only the United States but for much of the world.  It’s staggering how the Bush administration took politics over economics every single time.  As former Treasury Secretary Paul O’Neil said, they passed the costs of the Iraq and Afghanistan wars onto future generations.  They also added Medicare Part D when the costs are projected to be $8 trillion with no new revenues to pay for it. | via

Related: How much government is too much?

Column: There has to be more than tax cuts

My latest column in The StarPhoenix.  I’ll add in some extra link later today but for now I need to get some work done for my other employer.

The Star Phoenix Since the end of the Super Bowl, I have been following the National Football League lockout and the litigation surrounding it. I have concluded that the hard-line owners and the players association leaders are the stupidest group of people not working in the National Hockey League’s front office.

That all changed last week, when both the Republicans and the Democrats started to talk openly about defaulting on the debt of the United States – something that seemed so preposterous that I thought I was reading a headline from News of the World.

Sadly it wasn’t. If a deal isn’t struck soon, the U.S. will default on debt – something that neither Canada nor most western nations have ever done – and it will cause economic chaos around the world, again. Why has it come to this? You can blame George W. Bush or Barack Obama, but this one rests with the Tea Party.

Almost everyone agrees that the U.S. budget has to be cut.

Incredibly, President Bush cut taxes at the start of his first term and then, while the world changed after the Sept. 11 attacks, the U.S. tax rate did not.

Rather than raise taxes to pay for wars in Afghanistan and Iraq, Bush kept the rates low and borrowed, as if there were no tomorrow.

In case you haven’t taken time to think about how expensive wars can be, the U.S. spent $20.2 billion to provide air conditioning alone in Afghanistan and Iraq last year. By contrast, Canada’s massive Economic Action Plan had just $12 billion in new infrastructure spending.

On top of the wars, the Great Recession hit. Then, to control long-term health costs, Obama brought in health-care reform. It wasn’t universal care, but better than what Americans had. Suddenly people started talking about seceding from the union. Apparently helping people with their health problems is unconstitutional.

Somehow, out of all of this, the Tea Party was formed and has decided to fight raising the debt ceiling.

Conservative columnist David Brooks calls the Tea Party a "psychological protest," and I tend to agree. You would dismiss the partiers as wing nuts if they didn’t hold the balance of power.

In the 2010 midterm elections, the Tea Party was quite willing and able to defeat any Republican incumbent who compromised on increases to spending or taxes. The result is that Republican Congressmen know they will face a tough primary challenge from the right if they step out of line and compromise.

The result? A possible debt default.

What I find interesting about this is not the politics but the psychology. Tea Party supporters see taxes and government as evil: No tax increase can ever be justified.

I complain about taxes like everyone else. I howl every year when the mill rate goes up, but after 13 years of making weekly mortgage and property tax payments, my payments are now $130, up from $114 a week in 1998. Even if the city reduced its tax rate to the 1998 level, my gain would be about $15 a week. I cheered when the GST was lowered to five per cent from seven per cent, but I haven’t noticed the price go down on anything I have bought.

While I don’t especially like paying taxes, I also know they go toward making our city and our country a better place to live. Even the great icon of conservatism, Ronald Reagan, raised taxes when more revenue was needed. Brian Mulroney’s hated GST was a component that allowed the Chretien Liberals to balance the budget.

Yet to balance the budget the Tea Party demands only spending cuts, which will largely hurt the poor, rather than seeking to close tax loopholes for the rich. They propose gutting Medicare, which could hurt seniors across the nation.

It’s something you hear often and it boils down to: "If I can make it, so can everyone else." It’s based in a deep ignorance of the social, medical and geographic realities of how we are raised, the opportunities we are given or the geography we settle in. In Saskatchewan, where prosperity often has come because of the soil conditions of the homestead, we understand this.

Spending cuts are often deemed to be courageous and noble and at times they are. But so is ensuring the less fortunate are taken care of. We’ve always known that as a city and a province. I hope we won’t forget that, as others have.

Default: Bachmann vs Boehner

Joe Trippi & Paul Goldman writes in Politico

The debt ceiling issue is the first defining GOP presidential event because Bachmann is the only serious candidate with a vote in Congress. Tea party backers want to see her self-proclaimed “titanium spine.” If she plays it right, she can win huge. If not, she can become yet another fallen idol.

The Canadian rock group Bachman-Turner Overdrive scored big with “Takin’ Care of Business” back in the ’70s. Now Bachmann realizes that the wrong vote puts her out of business as a presidential aspirant.

President Barack Obama understands that default would inflict incalculable damage to the United States and add to the advantage of the nation’s foreign competitors. He is right to want to repeal unfair Bushonomics.

But let’s be honest: When Obama took office, the Democrats reneged on 2004 and 2008 platform promises to repeal Bushonomics — claiming the economic recovery was too fragile. Yet Democratic leaders attack Republicans as defending Bush’s “tax cuts for the rich” though the recovery is now even shakier.

No wonder Americans are cynical. Obama knows avoiding the economic damage from a default is of greater urgency than a fairness fix.

Bachmann’s tea party posse will not accept any agreement deemed dictated by the president. And GOP legislators, vulnerable to a primary challenge from the right, are understandably nervous about appearing to compromise with Obama.

Conservative columnist David Brooks writes from the GOP perspective and wonders if Republicans are even pretending to govern responsibly. 

But we can have no confidence that the Republicans will seize this opportunity. That’s because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.

The members of this movement do not accept the logic of compromise, no matter how sweet the terms. If you ask them to raise taxes by an inch in order to cut government by a foot, they will say no. If you ask them to raise taxes by an inch to cut government by a yard, they will still say no.

The members of this movement do not accept the legitimacy of scholars and intellectual authorities. A thousand impartial experts may tell them that a default on the debt would have calamitous effects, far worse than raising tax revenues a bit. But the members of this movement refuse to believe it.

The members of this movement have no sense of moral decency. A nation makes a sacred pledge to pay the money back when it borrows money. But the members of this movement talk blandly of default and are willing to stain their nation’s honor.

The members of this movement have no economic theory worthy of the name. Economists have identified many factors that contribute to economic growth, ranging from the productivity of the work force to the share of private savings that is available for private investment. Tax levels matter, but they are far from the only or even the most important factor.

But to members of this movement, tax levels are everything. Members of this tendency have taken a small piece of economic policy and turned it into a sacred fixation. They are willing to cut education and research to preserve tax expenditures. Manufacturing employment is cratering even as output rises, but members of this movement somehow believe such problems can be addressed so long as they continue to worship their idol.

The Shape of Things To Come

60 Minutes had a feature on the budget crisis’ that are happening at the state level.  Stay with me on this one.

"The most alarming thing about the state issue is the level of complacency," Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft

Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she’s warning about a financial meltdown in state and local governments.

"It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told Kroft.

Asked why people aren’t paying attention, Whitney said, "’Cause they don’t pay attention until they have to."

Whitney says it’s time to start.

California, which faces a $19 billion budget deficit next year, has a credit rating approaching junk status. It now spends more money on public employee pensions than it does on the state university system, which had to increase its tuition by 32 percent.

Arizona is so desperate it sold off the state capitol, Supreme Court building and legislative chambers to a group of investors and now leases the buildings from their new owner. The state also eliminated Medicaid funding for most organ transplants.

Then there’s New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers.

Gov. Christie acknowledged that’s a lot of jobs. "I cancelled it. I mean, listen, the bottom line is I don’t have the money. And you know what? I can’t pay people for those jobs if I don’t have the money to pay them. Where am I getting the money? I don’t have it. I literally don’t have it."
Asked if this is going on all over the country, Christie told Kroft, "Yes. Of course it is. It’s not like you can avoid it forever, ’cause it’s here now. And we all know it’s here. And the federal government doesn’t have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That’s it. And it’s gonna arrive everywhere. Timing will vary a little bit, depending upon which state you’re in, but it’s comin’."

And nowhere has the reckoning been as bad as it is in Illinois, a state that spends twice much as it collects in taxes and is unable to pay its bills.

"This is the state of affairs in Illinois. Is not pretty," Illinois state Comptroller Dan Hynes told Kroft.

Hynes is the state’s paymaster. He currently has about $5 billion in outstanding bills in his office and not enough money in the state’s coffers to pay them. He says they’re six months behind.

"How many people do you have clamoring for money?" Kroft asked.

"It’s fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state," Hynes said.
Asked how these people are getting by considering they’re not getting paid by the state, Hynes said, "Well, that’s the tragedy. People borrow money. They borrow in order to get by until the state pays them."

"They’re subsidizing the state. They’re giving the state a float," Kroft remarked.

"Exactly," Hynes agreed.

"And who do you owe that money to?" Kroft asked.

"Pretty much anybody who has any interaction with state government, we owe money to," Hynes said.

That would include everyone from the University of Illinois, which is owed $400 million, to small businessmen like Mayur Shah, who owns a pharmacy in Chicago and has been waiting months for $200,000 in Medicaid payments. Then there are the 2,000 not-for-profit organizations that are owed a billion dollars by the state.

Lutheran Social Services of Illinois has been around since 1867 and provides critical services to 70,000 people, mostly the elderly, the disabled, and the mentally ill. The state owed them $9 million just before Thanksgiving, and they nearly had to close up shop.

Asked how long his organization can go on like this, Rev. Denver Bitner, the president of Lutheran Social Services of Illinois, told Kroft, "Well, we wonder that too because we really don’t know."

He says they were forced to tap their entire line of credit and all their cash reserves before the state would finally pay them as a hardship case.
"It has to be that you’ve sold off all your assets, you have borrowed from everybody that you can borrow from, and then, we’ll think about it," Rev. Bitner explained.

And according to Bitner, that’s even though the state owes his organization the money.

"The first words out of my mouth are usually an apology, because they have been you know put in this situation, that is really unacceptable. And you know there is very little I can do or say other than apologize," Comptroller Dan Hynes said.

It’s not just the social safety net that Hynes has to worry about: there have been Illinois legislators that have been evicted from their offices because the state didn’t pay their rent, and stories about state troopers being turned away from gas stations because the owners refused to take their state credit cards.

"The state’s a deadbeat," Kroft remarked.

"Yeah. I mean, the state of Illinois is known as a deadbeat state. This is a reputation that has taken us years to earn and we’ve reached, you know, the heights of, I think, becoming the worst in the country," Hynes said.

In the early 1990s, Saskatchewan was on the verge of bankruptcy because the Grant Devine governments of 1982-1991 would not curb government spending and the deficit for a province under a million people grew to over one billion dollars.  The incoming NDP government of Roy Romanow was more pragmatist than idealistic and spent almost a decade trying to get the province on solid financial footings.  That journey was documented in the book Minding the Public Purse by the Hon. Janice MacKinnon, who was the Finance Minister during the most of the cuts.  Like I said, it was a decade of austerity.  There was funding cuts to healthcare, almost no building on the University of Saskatchewan or University of Regina campuses, a higher number of students in classrooms, longer waiting lists, rural hospitals closing, decaying highways, and it was really a lost decade.  Yes Saskatchewan did grow a bit during this time but with our financial house in disarray, growth was hard.

MacKinnon talks about how close Saskatchewan was to defaulting on it’s loans.  With the precarious state of the Canadian economy (pre-Chretien and Martin), there was some legitimate concerns that this could lead to an IMF bailout and intervention.  Luckily it never came to that but it did mean higher tuitions, higher taxes, more fees, a lot of lost opportunities that we are just now seeing as a province.

What’s scary is that the deficit numbers coming out of the U.S. states are worse and for all intents and purposes, the US economy is soon going to be in as bad or as worse shape as the Canadian economy was in the early 1990s.  I keep looking at the debt crisis that is swamping the EU economies and I can’t help but wonder until how long it is that you see places like Michigan, Illinois, and California needing massive financial bailouts.  Good grief, California has even looked at dissolving as a state and becoming a territory again (I don’t think it was a serious option).

How many lost decade will the United States go through to pay for wars in Afghanistan, Iraq, and the greed of the banks?  It took over a decade to recover from Vietnam and the state and cities economies weren’t in such tough shape.  This could either take decades or it could be the start of the long decline of the United States as a economic power.

The good news is that from Saskatchewan and Alberta’s experience is that as voters, we understood that it had to be done.  Whether it was the right wing Ralph Klein in Alberta or the centre-left Roy Romanow in Saskatchewan, we knew it had to be done and as a whole, we stood by them as they did the heavy lifting and hard cutting.  The  bad news for many states is that Saskatchewan has a natural inclination to support the NDP and Alberta has a natural inclination to vote Progressive Conservative which means that during the tough times, the provinces returned (or in Alberta’s case, they only ever elect Conservatives) what they knew and trusted during rough times.  If you don’t have you could have a series of one term administrations that moved from spend to cut to spend to cut for short term partisan advantage which could derail or destroy the entire process.  Too make spending cuts that are needed, you need a really strong majority which is not a strength of the American system which features a lot more checks and balances.

I can’t see many states turning themselves around.

Canada’s Personal Debt Crisis

According to the Globe and Mail

Sometimes, recessions can breed a hunker-down-and-save mentality.

Not so this time. Canadian household debt – a perennial worry in recent years – has ballooned to a point where it’s now more than double 1989 levels – just as rising borrowing costs are set to squeeze budgets, a national report cautioned Tuesday.

Household debt in Canada reached a record $1.41-trillion in December. If that was spread among all Canadians, each person would carry more than $41,740 in outstanding debt – an amount 2.5 times greater than 1989, according to a report by the Certified General Accountants Association of Canada.

And Canadians are okay with taking on still more debt. Nearly 60 per cent of respondents whose debt had increased through the recession – and 92 per cent whose debt decreased or stayed the same – still felt they could either manage it well or take on more debt.

It’s not looking good for mortgages either.

Mortgage rates – which have been trimmed in recent days – are higher than the start of the year, and poised to rise further as the Bank of Canada readies for a rate hike in the next month or two.

If mortgage rates rise by 2 percentage points, mid-income to mid-to-high income families may have to cut about 10 per cent from other expenditures if they want to maintain the same level of spending on shelter, taxes, food and transportation, the report said.

A separate report yesterday said almost half a million more mortgage holders would be in trouble if their rates hit 5.25 per cent. The study, by the Canadian Association of Accredited Mortgage Professionals, said about 375,000 mortgage holders “are already challenged” by their current payments.

Deficits are Devine

Well it’s official, deficit financing on the scale not seen since the Devine era is back in Saskatchewan.  The government of Saskatchewan is going to run a billion dollar deficit this year based on the fall of potash prices.  As told by the Star Phoenix.

The release of the government’s mid-year financial report Thursday shows it now projecting it will take in only $109 million from potash royalties and taxes – $1.8 billion below what it forecast in its spring budget.

The government is now spending more than it is taking in, even with higher-than-expected oil royalties, tax revenues and federal transfers.

That has required a drawdown from the reserve Growth and Financial Security Fund of $564.3 million and a special dividend from Crown Investments Corp. of $460 million from the sale of the government’s share of SaskFerco.

However on a summary basis – which includes all of the operations of government including the Crowns – a deficit projected at $25 million at budget is now pegged at $1.05 billion.

The NDP were all over this today.  I’ll link to Cam Broten’s website who posted the NDP press release and response to the deficit.

I liked how it started.

With the release of the Mid-Year Financial Report, NDP Finance critic Trent Wotherspoon said the Wall government has confirmed that it is responsible for the biggest example of fiscal incompetence in the history of Saskatchewan. He said the combination of grossly inflated potash revenue projections, equity stripping from Crown Corporations, and out-of-control government spending has left the province with a $1 Billion deficit on a summary financial basis and a financial blunder not seen in generations.

“Private forecasters, industry representatives, and the NDP Opposition all cautioned against the fantasyland numbers the Wall government put forward in its budget,” Wotherspoon said. “But cheerleading and popular promises ruled the day with no thought as to whether or not the expert advice it received should have been taken into account.”

Then it gets a bit weird as it moves for attacking “out of control spending” and attacks spending cuts.

Wotherspoon said the Wall government’s fiscal mismanagement isn’t just about numbers on a page; people are being asked to pay for its incompetence through cuts to healthcare, education, rural programs, and their quality in life in general. He noted that among the cuts was $122 million from the construction of long-term care facilities in rural Saskatchewan and $32 million from new school infrastructure.

So on one hand the NDP are criticizing the Sask. Party for running a huge deficit (which they should) while at the other hand trying to get upset or cutting spending to keep government spending under control.

I have friends and I respect people in both parties and here is my advice on to handle the situation.

Saskatchewan Party: You missed your revenue predictions by $1.8 billion dollars.  I would fire whoever made that prediction because I agree with the NDP on this one, when you came out with this budget, you must have known it was going to be a bad year for potash prices.  Even I knew it was going to be a bad year for commodity prices going into a global recession.  To keep this from happening again, I would come up with an independent office of economic forecasters that would give guidance to the government that were outside the Ministry of Finance and therefore outside the influence of the political pressures that lead to really bad budget forecasting.  Don’t go half-way with this.  Give it legitimacy, give it some independence, and fund it properly.  I am not an economist but I know many of them have ideological bents on how the world is going to pan out and that is natural.  Even the best economists are also going to make mistakes.  I can accept that (not $1.8 billion dollar mistakes but some mistakes).   What I want to see as a voter and a taxpayer is a process in budget forcasting that is non-partisan and transparent.  This would go a long way in restoring some confidence in your budget predictions which have been questioned by the media for over a year. If you want us to trust you again, you need to take some steps to ensure you don’t miss your targets again.  Again, as a Saskatchewan voter and taxpayer I want to hear what your plan is to pay back your billion dollar boondoggle sooner rather than later.  It’s a lot of money and you are going to take a beating in the press and in the Legislature but it’s better to deal with it up front and head on and then move on then play political games with it.  Dealing with it this way will hopefully stop the comparisons to the Devine Tories of the 1980s.

Also, potash prices didn’t just fall last week.  I know you a governing party doesn’t want to give negative financial updates every month but it seems prudent during a time of unstable financial times to offer a more transparent accounting of the public purse in regards how we are doing compared to our predictions.

NDP: Maybe they should not use the same press release to attack out of control spending and then attacking spending cuts.  Use two pieces of paper and maybe send out two different press releases.  Despite not liking the wording and structure of their release, the NDP have the high ground here, as they are the ones that slayed the deficit that last time.  If I was the NDP, I would have a reunion luncheon with Roy Romanow, Janice MacKinnon, Eric Cline, and others who had to go through year after year of budget cuts to talk about how hard it was and the consequences of deficit financing in the Devine years had on the 1990s in Saskatchewan.  While you are at it, give out a lot of copies of Minding the Public Purse to remind us again how hard it was to make those cutbacks as a government but also to remind us voters how hard it was to see things we care about in Saskatchewan to be cut.  If I was Trent Wotherspoon, I would also use the term “billion dollar boondoggle” a lot in the days ahead but that is just me.  Boondoggle is such a great word.

For both parties, I would love to see a real debate on their visions for the future.  A future that involves peak oil, a liquidity crisis turning into a long term government debt crisis, a future where our federal government seems destined to burden all of us with long term debt (again), higher interest rates, cut transfer payments, and potentially higher unemployment.   Are we going to grow ourselves out of this mess (doubtful) or make drastic spending cuts?  Will we see a higher PST and income tax rates in our future?  Will the burden be put on businesses or individuals or will someone come up with a new path to take?  Tough times are ahead and it would be refreshing to hear the vision of both major parties in Saskatchewan (and for that matter, I would like to hear the Liberal Party vision as well) about the role of Saskatchewan in a smaller, less affluent world will look like.

The young and the unemployed

From the Toronto Star

With about a million British youth unemployed, ours is hardly an isolated crisis. A recent editorial in the conservative U.K. Economist says the "plight of the jobless young … invokes talk of a lost generation." It notes the well-known phenomenon that "prolonged unemployment early in people’s working lives will leave them scarred in the long term. Youngsters who have been jobless for a year or more tend to do worse in the labour market for the rest of their lives."

Joblessness among the young is a global epidemic. By recent UN calculations, young people make up about 25 per cent of the world’s working population, but they account for 40 per cent of the unemployed.

"For the young" UN Secretary-General Ban Ki-moon said earlier this month, "informal, insecure and low-wage employment is the norm, not the exception."

Julie is enrolled to start at Centennial College next month. The tuition for her course in "Community and the Justice Services" is about $6,000 a year, a bit higher than the Canadian average annual tuition of $5,000. Or a total of about $12,000 to earn her two-year diploma.

Julie’s eyes light up as she describes her career goals. The Centennial program is a pioneering one that integrates criminology with social work, training students to coordinate the services of police, the Salvation Army, spousal abuse centres and career-counselling services. "You’re not trying to fix just one aspect of an individual’s problems," Julie says. "Finally, you’re looking at the whole person."

But Julie won’t be going to Centennial this year, after all. Her job – with its low wage and number of work hours available – didn’t allow her to save the $3,000 for her first five-month semester. And the daycare fees for her 3 1/2-year-old son, Malachi, and other costs have caught up with her.

The other option is take out student loans to get a better paying job

With university or college accreditation increasingly compulsory for fulfilling careers, more young people are graduating with a mountain of debt. A debt burden of $30,000 to $40,000 is not uncommon for graduates heading into relatively low-paying vocations such as teaching, nursing, social work and urban planning.

The better-paying careers in law, on Bay Street, in specialized branches of medicine and engineering, require even heftier debt loads. Because starting salaries in those fields are so much higher, the insidious effect is to dissuade young people from vocations of choice in, say, teaching or social work. Those would trap them in debt for perhaps a decade, and require them to postpone the expense that comes with starting a family.

The prospect of a "lost generation" due to long-term unemployment is an increasing fear among social scientists.

"This is just the start of a long and downward spiral, which all too often leads to crime, homelessness, or worse," Martina Milburn, CEO of the Prince’s Trust, a British non-profit organization, said recently. "Only by stopping young people falling out of the system can we rescue this lost potential."

As the global recession set in last year, Canadian youth joblessness of 11.6 per cent of the 15- to 24-year-old labour force was a bit lower than the average for the 30 industrial nations of the Organization for Economic Cooperation and Development. But even then, job prospects for Canadian youth trailed those of the Netherlands, Japan, Denmark, Australia and South Korea, nations with more comprehensive government-subsidized training and work-placement programs.

Save me the money

At work we all are more or less in the same income bracket which means we all read the Canadian Tire, Home Depot, XS Cargo, and Wal-Mart flyers as a group.  The unforgiveable sin apparently has to do with taking the Canadian Tire flyer to your office before everyone has had a chance to make suggestions to each other on things none of us need.  Today a large pool was suggested for our lobby.  Often times I don’t even have to read it, I am just told what to get or what I need by co-workers.   It also means that we have similar kinds of tastes and financial pressures and so people are pretty open about money.

Growing up I was horrible with my money.  Allowances were to be spent and I think I was the only kid who tried a leveraged buyout of a Star Wars action figure (I couldn’t get my banker to give me the $2).  As a teen I was just as bad.  I got a little better as I got older but eventually living from paycheck to paycheck got a little old and I started to get a lot more disciplined.

Eventually I learned how to manage our money a little better and while we haven’t always had that much of it, we have survived.  When I started working at the Salvation Army, all we had installed on the computers was Internet Explorer which meant that the homepage was set to MSN.com.  While I am not a big MSN fan, I love MSN Money, especially the home finance information.  Below are some of the articles that have made some sense to me over the last year.

  1. Money in Your 30s :: Compared with other age groups, more people in their 30s have serious debt problems. Despite median income that’s 76% higher than those in their 20s, people in their 30s are more likely to be 60 days late on a bill (9% compared with 7.9% in their 20s) and nearly twice as likely to be $10,000 or more in debt on credit cards (12.1% compared with 6.4%). (If you need expert advice on debt, free help is available here.)
  2. Money in Your 40s :: A majority of people in their 40s carry credit card debt, and the median balance is $3,800, sharply higher than the $3,000 carried by households in their 30s. The percentage carrying big balances is up as well: 14% of people in their 40s have more than $10,000 in credit card debt, compared with 6.4% of people in their 20s and 12% of people in their 30s.
  3. A Simpler Way To Save: The 60% Solution :: I’m not saying that 60% is a magic number. It’s a workable goal for my family, and it’s a nice round number. Your number might well be a bit higher or lower. At any rate, it’s a good place to start.
  4. Why You Need $500 in the bank:  This saved us a fortune in overdraft payments.
  5. The real reason you are broke: I hate large car payments with a passion.
  6. Don’t bite off too much house: I really would love a big office and man cave of my own but then I realize that our small house (and small house payment) has kept us solvent in tough times and I realize my corner of the basement works well.
  7. Your Seven Biggest Financial Decisions :: You don’t have to live like a monk to save money. Americans are conditioned to overbuy. Shopping has gone from being a chore to a hobby, a lifestyle even. Shoppers are encouraged to define their individuality in terms of style, which for most people comes down to a matter of which mass-produced goods one chooses to buy.
  8. Should I keep my clunker or go and buy a new car?
  9. 5 bad money mistakes to make in a downturn :: "Retirement, then credit cards, then emergency fund." Your highest priority, typically, should be saving for retirement, since every dollar you fail to save today could cost you $10 or more in lost retirement income. (The younger you are, the more you’ll lose by not tucking money away now.) Also, opportunities to get a 401(k) match or to fund an IRA or Roth IRA are typically "use it or lose it" propositions. Dispatching credit card debt should be your next highest priority, since it’s probably accumulating at double-digit interest rates and reducing your financial flexibility (see above). Finally, an emergency fund equal to three to six months’ worth of expenses can be a bulwark against the inevitable setbacks life sends us — job loss, disability, illness, accidents, natural disasters. Having a pile of cash in a high-rate savings account can also do wonders for reducing your money anxieties.
  10. Your money priorities ::
  11. 16 rules of thumb regarding money
  12. Save your emergency fund for the real thing :: Aside from her main emergency fund — now $25,000 (for her, that’s six months’ worth of expenses) — she has a separate account for house repairs and emergencies, another for the car, another for gifts and a regular savings account for miscellaneous expenses.
  13. Why one writer is saving up $15,000 in 2009
  14. What to do with extra paycheck :: Wendy gets paid weekly and I get paid bi-weekly so a couple of times a year, the checks get banked.
  15. 10 easy ways to save thousands

It’s pretty American advice.  I’ll admit it, I don’t much about 401k’s but the principles have helped Wendy and I spend less, save more, and gave us a lot of fuel for thought on what we wanted to do financially as a family.