Tag Archives: debt

Bits and Pieces – 20170124, Tuesday

Commentary: If Trump achieves half or maybe a quarter of what he wants to he will go down as a “great” American president. I suspect a significant piece of what he would want is impossible, not because of political obstacles but because some things will not be possible.

A lot of jobs that went offshore don’t exist anymore and can’t come back. Companies on-shoring will build new plants populated with robots and highly automated assembly lines. They would have done so anyway for economic reasons and this trend had started before Trump.

His trade policies may backfire. Raising tax barriers and tariff walls will start trade wars – may already have done so – so the imports will be cut but so will the exports. How this will affect the balance of trade is a question. In fact the trade deficits were the only way the US dollar could become the world reserve currency. Trump cannot control the currency – at least not for long. Any attempt to declare China a currency manipulator will lead to the depreciation of the yuan and strengthen the dollar, affecting exports and negating the effect of tariffs on imports.

He has a deeply divided country and he can’t fix this because the divide is to a large part caused by people who hate him and this he can’t change. Read: Trump: America for the Americans! He has inherited trillion dollar deficits and a 20 trillion dollar debt that goes as high as 200 trillion with unfunded liabilities included. The only fix for this is to press the reset button and the reset will be global.

This is going to be a wild ride.

So How Much Do We Owe?

The Ontario Government recently released its annual mid-term economic report 2014 Ontario Economic Outlook and Fiscal Review. We review the provincial debt situation in light of this report.

Ruminations of a Raptor

It’s 4:19 am and the mind is on a steady simmer. Warning: this is a ramble whose threads of coherence may be difficult to discern. It’s not dark yet But it’s gettin’ there.

The Ontario 2014-2015 Fudgit

In Ontar-I-Owe we updated the actual or total debt figure projections for 2013-14. Based on the numbers available from the Ministry of Finance, the figure was $292.8 billion (B). Looking at the 2014-15 budget released today we turn to Chapter 6 where the numbers reside. Table 3 contains the Total Debt figures which are the key ones for analyzing Ontario’s debt position. Consider Table 1 below taken from Table 6.3 of the Budget paper. The current number for the last fiscal year stands at $295.8 B.

Table 1. Total debt by fiscal year with year over year change, all in billions of dollars.

Year 2012–13 Interim 2013–14 Plan 2014–15
Total Debt 281.065 295.770 310.549
YOY Difference 23.787 14.705 14.779

The composition of this debt is shown in Chart 6.9, Total Debt Composition, which is consistent with picture of the Province’s Consolidated Debt Portfolio shown by the Ontario Financing Authority. As we have noted in past writing, the total debt or simply debt in common terms, is the amount of money that is owed third parties and the amount of money on which interest is paid. The government however will never use this figure. They prefer the lesser Net Debt which is optically better. For 2014-15, the net debt is estimated to be $289.251 B. The media will only use this number.

In Table 6.1, the government states that the 2013-14 deficit will be $11.3 B. We would be more inclined to view the year over year increase in the total debt of $14.7 B as the real deficit. It is certainly the extra borrowing the province incurred. In any case, in Table 6.2, they show a $12.5 B deficit for this fiscal year.

The Finance Minister is quoted in theStar.com: We are committed to balancing the budget in 2017. Someone needs to tell him that he has to reduce deficits to achieve this goal and not increase them, even for the purpose of buying an election.

Canada: I heard the sound of a thunder, it roared out a warnin’ …

The OECD, in its current General assessment of the macroeconomic situation of the global economy, gives 2 Tables, A1a and A1b, titled Indicators of potential financial vulnerabilities. These tables list 12 categories of macroeconomic activity that could warn of financial vulnerability. They are:

  • Potential GDP growth rate – actual GDP growth rate differential, 2012
  • Actual unemployment rate – NAIRU differential, 2013 Q2
  • Current account deficit , 2012 [1]
  • Relative unit labour cost, 2000Q1-13Q2 [2]
  • Household gross debt, 2012 [1]
  • Non-financial corporation gross debt, 2012 [1]
  • Real house prices, 2000Q1-13Q2 [2]
  • Core Tier-1 capital required to reach 5% of assets in selected banks [1]
  • Nonperforming loans to total loans, latest
  • Financial corporation gross debt, 2012
  • Headline government budget deficit, 2012
  • Gross government debt, 2012
  • Real 10-year sovereign bond yield-potential GDP growth rate differential, 2013Q3


Almost two years ago we started this blog and one of the early posts was Congratulations! You’ve Sold Your Kids and Grandkids Into Economic Slavery. In it we reviewed the debt position of Canadians and particularly Ontarians. We thought we would see where Ontarians stand after two more years of socialist government policy and corruption.

The U.S. Debt Crisis from the Founders’ Perspective

The U.S. Debt Crisis from the Founders’ Perspective

Tuesday, October 15, 2013 – 04:22 Print Text Size


By George Friedman

The U.S. government is paralyzed, and we now face the possibility that the United States will default on its debt. Congress is unable to resolve the issue, and President Obama is as obstinate as the legislators who oppose him. To some extent, our political system is functioning as intended — the Founding Fathers meant for it to be cumbersome. But as they set out to form a more perfect union, they probably did not anticipate the extent to which we have been able to cripple ourselves.

Striving for ineffectiveness seems counterintuitive. But there was a method to the founders’ madness, and we first need to consider their rationale before we apply it to the current dilemma afflicting Washington.

Flash Point: ‘Co-opted By Optimism’

Just before New Years and the dreaded ‘fiscal cliff’, we played around with a possible article aimed at highlighting what we consider to be the real fiscal cliff: the unrepayable US sovereign debt. We studied the Wikipedia article on the fiscal cliff and in the end decided the complexity of the issue which was shortly to become a moot point, was not worth the resource expenditure. The article cited the work of the Congressional Budget Office (CBO) in analyzing the trajectory of the US debt under different scenarios. In particular, the following Figure stood out:

Figure 1. Two CBO debt projections into 2022 (click to open in new window).

Source: An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022

Our concern was that the CBO debt projections might be somewhere between optimistic and wildly optimistic, dependent on their economic and fiscal assumptions. For example, we doubt that their projections have an allowance for new wars although they consider military activity, but it is hard to imagine that the US will not be involved in at least one major new war in the next decade, especially if Kyle Bass (Kyle Bass: One Smart Man; see the Dec. 22 entry and video link) and others are right. In a more mundane vein, we wondered what the GDP estimates  were that they used. John Mauldin’s latest eletter, Somewhere Over the Rainbow motivated us to revisit the issue from the perspective of GDP.

A Christmas Letter

We are reprinting an open letter from David R. Kotok, Chairman and Chief Investment Officer of Cumberland Market Advisors, to Mr. John Boehner, Speaker of the US House of Representatives. We do so since it is a wonderfully concise description of the US’s fiscal problems with a next step recommendation. The letter:

Distortions in the Global Economy

We have argued in several places that a high unemployment level in the US is structural. In today’s “Outside the Box” titled Sorting Out the Decade, John Mauldin presents two articles by Bill Gross and Charles Gave that have bearing on themes we have written on.

In the first, Bill Gross confirms our argument that high unemployment level in the US is structural (see the emphasized segment below):

Recently, Erik Brynjolfsson and Andrew McAfee at MIT have affirmed that workers are losing the race against the machine. Accountants, machinists, medical technicians, even software writers that write the software for “machines” are being displaced without upscaled replacement jobs. Retrain, rehire into higher paying and value-added jobs? That may be the political myth of the modern era. There aren’t enough of those jobs. A structurally higher unemployment rate of 7% or more is the feared “whisper” number in Fed circles. Technology may be leading to slower, not faster economic growth despite its productive benefits.

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