When will it matter

RYAN By Guest Blogger Ryan Lewenza

We live in a world of debt! Individuals, corporations and governments have all been gorging on cheap and free flowing debt, leaving many to believe that we’re closing in on a major debt crisis that will have untold consequences for the global economy. Of course these types of dire and apocalyptic predictions almost never come to full fruition, but one would be foolish to believe that we can get through this historic debt binge completely unscathed. This week I examine the boring, yet critically important topic of rising debt levels, and what it could portend for the economy in coming years.

Let’s focus on US government debt since it’s absurdly high and receives the most attention. US government debt has been rising steadily for decades under both Democratic and Republican parties – both parties suck at reining in spending and balancing budgets.

In 2000, under President Clinton, US government debt stood at $5.5 trillion. Then under Bush II, it doubled to $10.6 trillion in part due to increased government spending and the costly Afghanistan and Iraq wars. US debt then exploded under President Obama, due in large part to the effects of the Financial Crisis and the half-speed recovery that followed. US debt doubled again under his two-term presidency to $20 trillion, with the last $2 trillion coming under Trump’s presidency. So neither party can claim moral high ground on the persistent US deficits and high debt levels since both parties have done a terrible job in reining in spending and addressing the out of control debt, which currently stands at an almost incomprehensible $22 trillion or $67,000 per woman, man and child in the US.

Total US Government Debt Outstanding

Source: Bloomberg, Turner Investments

Where did it all come from?

The US government spends more than it takes in in tax revenue, resulting in huge annual deficits. For example, last year President Trump and Congress spent a record $4.75 trillion, which is broken into 3 categories – mandatory spending (e.g., Social Security) at $2.84 trillion, discretionary spending (e.g., military) at $1.43 trillion and interest on the debt of $479 billion. Now, the government only took in $3.65 trillion in revenues, resulting in a deficit of over $1 trillion last year. As seen below, the US government has posted 18 consecutive years of deficits with no end in sight. Basically, the US government (and our own government) is spending like a drunken sailor on leave, which is what got them here today.

US Government Annual Budget Deficit/Surplus

Source: Bloomberg, Turner Investments

How can the US get back to surpluses and start addressing the debt?

The problem is there are not many levers that the government has at its disposal to address the deficits so if politicians are serious about addressing this problem they are going to have to make some really tough choices.

First, they could look at the revenue side by increasing taxes on individuals and business. Clearly this is not an option under the current administration given that Trump and the Republican-controlled Senate just implemented historic tax cuts last year. The Democrats would have to take back the Senate and the Whitehouse to have any chance of raising taxes. So don’t expect any progress on this front for a while.

Second, is on the spending side and again there are few available options. Either discretionary spending, particularly military spending would have to be slashed, and/or they would have to reform the mandatory programs like Social Security payments to make any real dent in the deficits.

If I were the President I would take a measured, all of the above approach, given the severity of the problem, by increasing taxes on individuals (I also think they cut the corporate tax rate too far last year), cutting discretionary spending (US military spending is completely out of control at $716 billion for this year, up $82 billion since 2017), and reforming social programs like Social Security and Medicare. Of course these spending cuts would have huge negative consequences on so many people, but if the US wants to actually address the debt they will have to put their big boy/girl pants on and make some tough decisions. The alternative down the road could be so much worse!

Now it’s important to emphasize that when analyzing debt levels and the potential implications you have to look at the debt relative to the size of the economy, as the tax revenue that supports the spending and debt flows from the state of the overall economy. Currently, the US government debt-to-GDP ratio sits at 109%, which was just 60% prior to the Financial Crisis. This is unstainable over the long-run and absolutely needs to be the focus.

The other important point to stress is that it’s not just the US that has high debt levels. Below are the debt-to-GDP ratios of the G7 nations and you can see Japan is the worst at 234%, then Italy at 127%, followed by the US. Germany looks pretty solid at 61%, and Canada is ok at 84%. The point being, a lot of countries have racked up debt so the problem is global.

G7 Nations Debt to GDP Ratio

Source: Bloomberg, Turner Investments

So when will it matter and what’s the end game?

From a timing perspective I think we’re still some years away from when this risk could metastasize and really start to have an impact on people’s lives and the broader economy. As a society we have an uncanny ability to kick the can down the road and delay making the hard sacrifices. One reason I think we’re still a ways off from this risk manifesting is that I believe it will require a large spike in government bond yields to set off alarm bells as this would lead to a significant increase in servicing the debt.

I believe we’re in a low-growth, low interest rate environment for years to come, in part due to the high debt levels and declining population growth rates and productivity gains – the two key drivers of long-term economic growth. If correct, this could push out the day of reckoning.

The second way this debt time bomb could go off is if we see a material decline in investor confidence over the debt levels. In this scenario, investors would rush to the exits driving up yields quickly, which could really set things off and have a very negative impact on the economy and financial markets. This is the worst case scenario.

Finally, the third potential outcome is that somehow we just deal with this high debt in a somewhat orderly way. Governments finally wake up and start cutting back on spending, bringing deficits back in line, interest rates remain low, and economic growth remains overall supportive. This is the goldilocks scenario and while unlikely, is possible.

In closing, I fully acknowledge how boring this blog topic is but I can’t stress how critical this debt problem could be if left unaddressed. I hope that in the not too distant future our political leaders will man or woman up, and start making the tough decisions to finally rein in the excessive spending and debt levels. I’m an optimist and think there is still time, but the hourglass is slowly emptying.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

 

112 comments ↓

#1 The Great Gordonski on 06.08.19 at 1:01 pm

Good to know you’re focused on the past, but that doesn’t make money tomorrow does it? The stock market is forward looking. Better to douse the Trump Hate for the investing. Hating Trump is why so many money runners have lost out and had thier shorts creamed the last two years. This is also why so many technical analysts make poor investors, the preoccupation with what happened in the past and the bloviating media nonsense clouds the ability to look at forward guidance. For example, I just jumped both legs into AT &T, got any idea why? The past is scary as hell, historic charts are suicidal…. but the future is where it’s at. Have fun with that question. I’ll mark this day as another hugely successful stock pick to report back on .

#2 crossbordershopper on 06.08.19 at 1:03 pm

since i was a kid 30 or 40 years ago, they have been talking about debt and deficits. and the ticking time bomb etc.
all i know is poor people are happy and rich people worry. I see it every day, millionaire worry warts, debbie downer and Jimmy who likes his wine.
in the end the poor will get a cheque, i can assure you, if they dont they will take it from you, we occasionaly change the amount or the administrator of it but in the end what does it matter if you live in a house and occupy it or the landlord rents money to finance it. from a poor person perspective, assets mean nothing, just more stuff to move, step over and hoard.
rich people talk stuff like purchasing power, taxation, returns and inflation, inconsequential to an alcoholic.
go south, eat and drink well cheap and cash your government cheque, or like a lady i know who pays taxes on her investments every april and frets over why at 80 still paying taxes and no government benefits.

#3 crowdedelevatorfartz on 06.08.19 at 1:04 pm

Remember when the “Debt Clock” toured all the major Canadian cities and the Cretien Govt actually balanced the budget and started paying down our debt?

Balanced budgets for Federal, Provincial and Municipal govts should be Law.

#4 NoName on 06.08.19 at 1:08 pm

1st, 2nd time in a row.

#5 yvrmc on 06.08.19 at 1:09 pm

I have never understood how governments get away with this unbridled spending. There will come a financial judgement day . Am I naive , what is wrong with a legislated legal duty to balance budgets every year ?

#6 A Dollar is a Dollar is a Dollar on 06.08.19 at 1:10 pm

Ryan, historically its been true for decades that incompetent Conservatives drive up the debt doing stupid things (tax cuts for the rich, selling off Hwy 407 for peanuts, etc., etc…)

Then Liberals come in and actually try to sort things out (like Paul Martin balancing the budget in the 1990s) and eventually get demonized for doing the right thing and run out of gas.

How about we just stop supporting Conservatives, since they are such freakin’ idiots?

https://ipolitics.ca/2015/04/19/no-matter-how-you-add-it-up-harpers-fiscal-record-is-a-catastrophe/

Maybe have criminal offences for such leaders who lie and cover up their favouring of the rich by putting us all in more debt?

Imagine that!

Brian Mulroney, Mike Harris and Stephen Harper could all share the same jail cell!

Sexy!!!!

#7 Stan on 06.08.19 at 1:16 pm

Assume a fiscally responsible government is elected that would implement your third outcome that might bring budgets back toward balance and, eventually surplus. In the next election campaign, the less responsible parties are going to promise all kinds of spending that sound really good with only minor consequences (small deficits, budgets that will balance themselves) and we’ll be right back where we are now.

The worst part is that it is the young people who have never known high interest rates and that are not bothered by debt that will vote in the free spenders. As a senior who will not be the one paying for it all, I’m tempted to just throw up my hands and let them find out for themselves.

#8 Russ on 06.08.19 at 1:18 pm

Basically, the US government (and our own government) is spending like a drunken sailor…

========================

If I may offer a correction to the above observation.

It is more accurate to say “spending like a SJW Member of Parliament”.

You see, drunken sailors spend their own money. It is in their jeans, so to speak.
Sure they may spend somewhat recklessly but the main point is that it is not other people money being spend recklessly.

I realize that COLREGS and this idea may be difficult for landlubbers to fathom.

Cheers, R

#9 espressobob on 06.08.19 at 1:31 pm

As retail investing goes it somehow seems prudent to tax shift in ones portfolio each year. I see our so called RRSP suffering higher tax rates down the road. Won’t that be fun?

Now back to the Canadian open. Not so boring.

#10 jess on 06.08.19 at 2:06 pm

Liberal MPs vote down tax fairness bill:

A private member’s bill to help fight offshore tax evasion was defeated in the House of Commons last week. Liberal Senator Percy Downe, a long-time tax fairness advocate, had introduced Bill S-243, which would have required Canada Revenue Agency to report on Canada’s tax gap – how much revenue the government should get compared to the amount it actually collects. Tax gap reporting is a critical first step to tackling international tax haven use. The independent Parliamentary Budget Officer (PBO) has acknowledged there isn’t enough data available to properly assess losses to offshore tax havens and how to fix the problem.

Canadians for Tax Fairness had championed the Senator’s Bill, which was passed unanimously by the Senate and supported by other parties in the House, but voted down by the government on May 29, 2019.

The Liberals said they agreed with the Bill “in spirit” but that it wasn’t the right regulatory tool, adding that since 2017, the CRA has already committed to publishing annual estimates of how much is lost to offshore tax avoidance.

But having that reporting enshrined in law would be an important measure to tackle Canada’s tax havens problem. As Senator Downe has pointed out in recent op-eds, the CRA is failing to catch and prosecute international tax dodgers. More than three years after the Panama Papers, Canada has made little progress while other countries have recovered billions. We need every resource and regulatory tool available…”

read more @

https://www.taxfairness.ca/en/newsletter/2019-06/offshore-tax-informant-program-paying-%E2%80%94and-out

==========
http://www.antimoneylaunderinglaw.com/2015/12/an-ugly-battle-with-a-shady-cast-of-characters.html

#11 Lost...but not leased on 06.08.19 at 2:09 pm

Bought for $4.1. Asking for $5.3. Settled for $3.6

Seller is “Head of Strategy & Planning at HSBC Canada”

Bank insider rushing for the door, willing to take $600k loss.
What does he know?
Bottom falling out…

https://mobile.twitter.com/VanRELeaks/status/1134924466318786560

#12 jess on 06.08.19 at 2:10 pm

Business News
June 7, 2019 / 2:16 AM / a day ago
States sharing bank details expose ‘deep pool’ of offshore money: OECD

https://www.reuters.com/article/us-oecd-tax-idUSKCN1T80F8?utm_content=buffer467d9&utm_medium=social&utm_source=twitter.com&utm_campaign=Buffer+-+Twitter

#13 Nita Graves on 06.08.19 at 2:19 pm

zzzzzzzzzzzzzzzzzzzzzzzzzz,

thanksRyan,

enjoyed it !

#14 Flop... on 06.08.19 at 2:23 pm

In closing, I fully acknowledge how boring this blog topic is but I can’t stress how critical this debt problem could be if left unaddressed- Ryan Lewenza.

Hey InfLewenza, dunno, could just be my mid-life crisis sneaking up on me, but I am strangely enjoying slowly becoming a debt dork…

M44BC

#15 Joe on 06.08.19 at 2:39 pm

-this does not quite make sense
-from your graph G7 Nations Debt to GDP Ratio

-with Japan at 234%(3 times as bad as Canada, 4 times as bad as Germany), why has there not been a meltdown there?

#16 Robert Ash on 06.08.19 at 2:53 pm

The biggest problem, with this Commentary is the fact that the Financial Expert, has not acknowledged that the Government and the Financial Institutions, are not managing the Credit Market, as demanded by Generally accepted Accounting Principles…and common sense… The Financial Paradigm, is quite warped, when the Cost of Credit in many instruments is so high, while the Depositors, or Holders of the Funds, ie the Savers get almost nothing…. We all know this is an Anomaly, not a balanced system and all our Policy markers, are ” Gaming the System”. So how do we have confidence in any of the traditional ideas, and important concepts.. One Group is chosen to lose.. the other to win.. Free Market.. Not so much… and it will impact all Financial Professionals, as negatively as the Fractured and Maligned Real estate market… Started with A-hole Greenspan, and continues today… The CB, should try a little collusion.. Have a Golf, day and raise, the Overnight rate… at least 100 Basis points….. I believe that if we have to live with the CRA and Accounting rules, OK.. then let’s get the reality back… Swooning over a quarter of a percent of interest… Sadly I feel our Policy makers, promote this scenario, as the reality of this problem , would impact those Policy markers, very negatively, if the same, reality set in with the Electorate… Hugh reset needed.

#17 BlogDog123 on 06.08.19 at 3:05 pm

Governments are not interested in addressing the deficit, or the debt…

Here’s a friendly reminder of a campaign budget in 2018. Cringe as you hear the BS coming out of this politician’s mouth weeks before he was voted out of office…

https://www.tvo.org/video/2018-ontario-budget

#18 Ryan Lewenza on 06.08.19 at 3:06 pm

Joe “-this does not quite make sense
-from your graph G7 Nations Debt to GDP Ratio
-with Japan at 234%(3 times as bad as Canada, 4 times as bad as Germany), why has there not been a meltdown there?

It’s coming for Japan. Well-known economist John Mauldin says Japan is a bug in search of a windshield. There are a few reasons why there has not yet been a meltdown. First they’ve had a stagnating economy for years with very low interest rates which has allowed them to continue to service the debt. Second their debt is largely held domestically by retired Japanese, pensions etc. versus outside investors. This allows them to better contain the problem. But this only delays the problem rather than solving it. – Ryan L

#19 Out Of Work CEO, Will Travel on 06.08.19 at 3:19 pm

The low rates is a transfer of wealth to governments and corporations from the saver who now is the “extinct do do bird”. IBM and GE the poster multinationals for “stock buy-backs”…what did that get them? Who suffered when they bought back billions with “zero rates”? I had my financial crisis at the same time as the “Great Financial Crisis 2008” living in denial. Now I am afraid to buy new clothes that costs more than $5. Once a week for SBUX. My car is seven years old but it should lasts another ten years. There are no credit card bills or lines of credit or payments. I look a bit shabby but I am at peace with no dobt.

#20 Barb on 06.08.19 at 3:23 pm

#5 yvrmc on 06.08.19 at 1:09 pm

“…what is wrong with a legislated legal duty to balance budgets every year ?”

—————————————————————-

Exactly!
Why wasn’t this listed as one of the options?
It’s imperative IMO.

And Canada at 84% as “OK” is an unsatisfactory stat.
Don’t hint for a minute that Canadians might accept it.

Our PM is indeed spending like a drunken sailor.

#21 M.T. on 06.08.19 at 3:30 pm

****how boring this blog topic is****

Not at all, bro, Not. At. All. Crucial importance, thanx for dealing with it objectively. More people need to understand this.

#22 Flop... on 06.08.19 at 3:43 pm

#9 espressobob on 06.08.19 at 1:31 pm
As retail investing goes it somehow seems prudent to tax shift in ones portfolio each year. I see our so called RRSP suffering higher tax rates down the road. Won’t that be fun?

Now back to the Canadian open. Not so boring.

///////////////////

I guess I’ll begrudgingly give thanks to RBC with their stable of studs for making The Canadian Open a better tour stop…

M44BC

#23 Leanne on 06.08.19 at 3:49 pm

Forgive me if I missed it, but does Canada’s debt at 84% of GDP include ALL government debt, or just the federal debt?

Scary indeed…

#24 Shawn allen on 06.08.19 at 4:01 pm

Exploding debt yet near-zero interest rates.

Why do investors keep buying government bonds. Buffett calls long government bonds shorrible investment at these rates.

Shall we blame the balanced portfolio followers including pension plans that mindlessly allocate some 40 percent to bonds no matter that they pay next to nothing?

In other words shall we blame Garth?

#25 Debtslavecreator on 06.08.19 at 4:20 pm

Phenomenal piece Ryan
Great work
It won’t matter until it does
I think rates go lower for the next 6-12 months but without concrete action within the next year or two we become likely to see a Greek style sovereign debt crisis by 2022-2025
Politically and demographically it does not look good. More takers than makers and the growth rate in takers will far exceed the growth in makers
Our young and unborn will get their revenge in the 2030s
Let’s hope for the best
We need to slow the growth rate in spending and the potential Hail Mary is a total tax reform
Eliminate all deductions and credits and income is all sources including cap gains , dividends , net rents etc
Then we can have no tax on the first 35-40 k of income with those whose total income exceeds 350-400 k paying 30 %
Once in place slowly increase HST up to 19% and share 2/2/2 with each level of government
For all households under 35k they get a tax fee pre-bate payment enough to offset the estimated HST or at lest half the estimated HST they spend
All business income under taxed at no more than 10% as the focus would be on taxing the income earned individually by execs and shareholders
Unless we do a major reform of the tax code we have no chance
We can easily reduce costs of collecting by 35-50%

#26 Dave on 06.08.19 at 4:24 pm

Money is a debt based system…the USA will never be debt free. As debt hits critical levels the will be a war where the Americans sieze all the other country’s key assets ie oil, infrastructure, ports, etc.
If all the oil in Venezuela belongs now to USA….they can kick the debt down the road till they take over Iran or any other none central bank country.

#27 Ryan Lewenza on 06.08.19 at 4:28 pm

Leanne “Forgive me if I missed it, but does Canada’s debt at 84% of GDP include ALL government debt, or just the federal debt?”

That’s just Federal government debt. There are a few debt to GDP ratios and one sits around 40% and the other at the 84% for Canada. I need to look into the different calculations to better understand the two numbers but either way Canada’s Federal debt to GDP ratio is not bad and much better than most developed countries. Ontario’s debt is another story. – Ryan L

#28 EnnDeePea on 06.08.19 at 4:30 pm

#46 Smoking Man on 06.07.19 at 8:36 pm
Trump Just Announced.

My take Equities will be on Fire Monday Sell off in Treasury..

=============================
#5 yvrmc on 06.08.19 at 1:09 pm
I have never understood how governments get away with this unbridled spending. There will come a financial judgement day . Am I naive , what is wrong with a legislated legal duty to balance budgets every year ?
=======

Simple people just want to see the stock market index go up.

#29 Ryan Lewenza on 06.08.19 at 4:39 pm

Shawn Allen “Exploding debt yet near-zero interest rates. Why do investors keep buying government bonds. Buffett calls long government bonds shorrible investment at these rates. Shall we blame the balanced portfolio followers including pension plans that mindlessly allocate some 40 percent to bonds no matter that they pay next to nothing? In other words shall we blame Garth.”

Yeah blame Garth for recommending a balanced portfolio and holding some bonds in a portfolio. What a silly thing to say. First, you still want bonds in a portfolio to help control for risk and reduce portfolio volatility. The alternative is a 100% in risky assets which is a bad investment strategy. Second, if I’m correct that rates stay low for a while investors shouldn’t experience big losses on their bonds (they won’t see big returns either from them). Third, Buffet is a stock guy, always has been and always will be. So blog readers don’t listen to Shawn Allen…you still need some bonds and prefs in your portfolio to help control for risk. – Ryan L

#30 Sail Away on 06.08.19 at 4:43 pm

Canada joins Germany, Rwanda and Cambodia as countries guilty of genocide. An international investigation has been opened. Our handsome idiot of a PM needs to go.

#31 Frustrated Kiwi on 06.08.19 at 4:49 pm

#15 Joe – you hit the nail on the head. There is an expanding group of non-mainstream economists who believe that for any country in charge of its own currency (i.e., not Greece) govt debt doesn’t matter much (corporate and individual debt on the other hand….) After all, we live in a fiat currency world – the govt can always print more, the only risk is inflation. I would recommend starting with Ann Pettifor’s “The Production of Money”.

#32 Michael on 06.08.19 at 4:52 pm

Hi Ryan,
Oboy! What a column! Some questions if I may.

Why does a sovereign government the size of the United States of America *need* to balance its budget? It is a currency-issuing entity. It “prints” money as required it cannot go bankrupt.

Any budget deficit at the federal government level represents fiscal stimulus. Why is this a bad thing?

Any budget surplus represents removal of liquidity from the economy. This is called austerity. Why is “austerity” good for the economy?

On the Canadian side: the Bank of Canada borrows money from the Bank for International Settlements (why?). We pay interest on that. What benefit is bestowed upon the Canadian fiscal picture by the payment of this interest to an entity outside Canada?

“reining in spending and balancing budgets” (your phrase) are necessary activities that you do at home. Why does a currency-issuing entity (Federal Government) need to do this?

#33 Kelly on 06.08.19 at 5:00 pm

Thanks for a well written article Ryan.
Unfortunately, no one is allowed to care about the debt at pretty well any government level.

Voters will not stand for any government action that cuts anything. Our only hope is crazy inflation reducing the debt, all the while we keep interest rates barely above zero.

We live in a world fed misleading news.
Many feel no need to worry about the debt as they’re all going to die in 12 years over something labeled “climate change” or the CBC version “climate crisis”.
Similarly, the Russians ” stole the election ” in the USA using Facebook ads.

Believing in the above nonsense renders many totally unworried about debt levels on a personal or government level.

Eat, drink and be merry.

All will pass.

#34 Frustrated Kiwi on 06.08.19 at 5:02 pm

PS I suggest looking at who Japan owes its debt too. 40% is to its own reserve bank! 55% is bonds owned by Japanese citizens. It could cancel that 40% at the sweep of a legislative pen. But that would freak out investors like Ryan who don’t understand how money actually works (because it’s not taught in mainstream economics classes).

#35 Newcomer on 06.08.19 at 5:14 pm

#5 yvrmc on 06.08.19 at 1:09 pm
I have never understood how governments get away with this unbridled spending. There will come a financial judgement day . Am I naive , what is wrong with a legislated legal duty to balance budgets every year ?
———–

What about in war? Suppose the country was suddenly attacked. What about if there was a plague? What about a 1930s style depression? And, of course, let’s not forget that legislation is made and changed by governments.

#36 Flop... on 06.08.19 at 5:21 pm

I can’t be the only visual learner on this blog, aka stupid person, can I?

I pulled out my crayons and drew up this version.

I think the common consensus on this blog is three posts, you’re out.

I went down swinging…

M44BC

“Visualizing the State of Government Debt Around the World.

One of the most underappreciated problems facing the global economy right now is the ever-increasing rise of national debt, and the potential for investors to lose faith in a country’s ability to ever repay its obligations.

Gross Domestic Product (GDP) measures the total value of the goods and services produced within a country over a period of time, like a year or fiscal quarter. The ratio of debt-to-GDP makes it possible to compare relative debt levels across many different countries. The U.S. is able to carry a much larger debt in overall terms than smaller countries like Belgium because the economies are of such a vastly different size. Think about it like this. It’s no problem for Bill Gates to have a credit card bill for $50,000 because he has billions in the bank, but for the average American, that would mean bankruptcy.

We used the latest (October 2018) complete set of numbers from the International Monetary Fund to plot debt-to-GDP ratios between countries in an interesting visualization. Countries with larger ratios appear bigger, redder, and toward the center of the visual. Our approach places the countries with the most significant debt problems at the center, letting you see which places are more likely to have substantial issues in the future.

Countries with the Biggest Debt to GDP Ratio

1. Japan – 238%

2. Greece – 182%

3. Barbados – 157%

3. Lebanon – 147%

4. Italy – 132%

5. Eritrea – 131%

6. Republic of Congo – 131%

7. Cabo Verde – 126%

8. Portugal – 126%

9. Sudan – 122%

10. Singapore – 111%

The first and most obvious insight that our visualization reveals is how developed countries have the biggest debt problems. Japan immediately stands out as the single most prolific spender with a debt-to-GDP ratio of 238%. That means the entire Japanese economy, the third largest in the entire world, doesn’t produce nearly enough value in 2 years to pay off its entire debt. Greece is not far behind at 182%, followed by Barbados (157%) and Lebanon (147%). The U.S. has the 13th worst ratio in the world at 105%.

Immediately outside this inner ring of heavy spenders are several small or developing countries with enormous financial challenges. Egypt (103%), Cyprus (97%), Mongolia (84%), Brazil (83%) and Yemen (74%), to name only a few, clearly have debt problems that could spark financial problems for the rest of the world.

And then there are a host of green countries along the outside of our visual worth mentioning, especially China (47%), which has the second biggest economy in the world but a remarkably healthy national balance sheet. Granted, the country is still undergoing substantial urbanization and modernization, but the fact that it has such a low debt-to-GDP ratio suggests that it can spend buckets of additional money solving its challenges. Also take a look at Russia at only 16%. The Russian economy is plagued by corruption and slow growth, but at least it won’t have a debt crisis anytime soon.

Another way to think about this visual is in terms of spending and revenue, which is to say, should countries with high debt-to-GDP ratios spend less money or collect more tax revenue? We doubt any country can actually “grow” its way out of a crushing debt burden worth more than its entire GDP without making substantial changes to its fiscal behavior. Policymakers will eventually have to solve this problem, and either option poses serious challenges to economic growth.”

Visualization

https://howmuch.net/articles/state-of-the-worlds-government-debt

#37 crazyfox on 06.08.19 at 5:23 pm

I looked into this topic a while back Ryan and what I came up with is that current world debt problems will get worse and a good number of nations will go bankrupt as debt becomes unsustainable “under current monetary systems and practices”. The U.S. had a few years to act (a few years ago).

Assessing the long term fiscal health of any nation requires the total compilation of all government debt, not just federal but state and municipal and since debt is offset by tax revenues, consumer income and debt, real estate and corporate debt need to be factored in to assess bond risk or higher yield scenarios.

Assessing the total pie of a nation’s debt/income public and private is exhausting, especially if there is poor data and language barriers to work with not to mention why some nations are getting away with such high debt loads (think Japan) so a number of factors come into play outside of the nuts and bolts of debt to income ratios. Key among them is:

– who do you owe? If a government owes itself through Q.E., in theory, it can print money to infinity by keeping rates low. Under this scenario debt to income/tax ratios become not just unsustainable but unable to pay back over time. Then it becomes a question of:
– money velocity established through trade and
– domestic/international confidence in the currency in question.

In the case of Japan, most of their debt is domestically owned which is largely why they are still functioning with unchanged economics that point to much higher debt loads to come and there is still international confidence in their currency largely due to that fact coupled with positive money velocity that reflects strong trade exports in certain sectors but their demographics suck, their tax base is shrinking as a consequence and gov spending is unsustainable except through more major deficit spending. Japan’s future if climate change, global biodiversity loss, overpopulation, war, degrading environments and my personal favorite “immorality”, doesn’t get us first?

Currency consolidation. At some point confidence will be lost on the yen, through slowing velocity as corporate earnings fade and it goes one of 2 ways. Japan either watches runaway inflation hit at some point with rates that become unsustainable and as a sovereign they go bankrupt OR Japan opts for a currency consolidation to offset government debt. Both are inflationary obviously but only one is “orderly” or programmed while the other is “disorderly” or uncontrolled. And, since currency consolidations haven’t been tried yet that I know of, there will be hiccups particularly with all foreign ownership of said currencies. In the 2040’s or sooner, the Yen and the dollar will likely be the laughing stock of world currencies, Yen dropping hard first. That may just bring new life back to trade as its all about purchase power assuming other world events don’t get them first but I digress.

In solving the world’s problems (heck, any problem), to get the right answer, one must ask the right question. Its not a question of choice persay, its a question morality behind the choice. If humanity was more moralistic, not just with its leaders but its supporters and enablers, if we practiced more right from wrong, we would be tackling all of the world’s problems from debt and overpopulation to the environment to the needed rollout of tech and education, you name it but we are not collectively moralistic and it shows in spades with our choices.

Currently, the second richest person in the world (plausibly, his wealth is estimated between $70 and $200 billion) is Vladimir Putin. If Putin has more than $125 billion, he’s second only to Warren Buffet. Regardless of where Putin’s standing of the world’s richest, Putin basically took everything he owns from others. Essentially Putin is the world’s most successful bully or thief. We also have Trump leading the presidency of the world’s largest economy. Can anyone with a straight face commend either of these men as individuals who are tackling the world’s greatest problems? Are they immoral… see the connection? And what of ourselves… as we often see only what we want to see in keeping with our own self interests. Climate change is a hoax or not man made or unfixable because we make money on oil or fear losing it on green tech. Its not a question of scientific reality or logic, its a question of profit. Y’know… morality because if it was a question of truth we’d call a spade a spade but we don’t. We lie to serve ourselves (and others) and do it often and thats what is so wrong with this world. Easy fix, just stop lying but there’s no profit in that or so we tell ourselves so we keep lying (I am of course generalizing) and the world as we know it keeps limping along until it doesn’t.

I wish it didn’t sound so dark but it is. Its not all bad, “go Raptors!” but by 2030, those in the know or sooner if they don’t already will fear the worst and so they should or, philosophically knowing that fear results from the absence of love… expect the worst and the worst will come. Why am I so convinced? Lack of morality.

#38 Eco Capitalist on 06.08.19 at 5:24 pm

The problem is that, right now, the world has no leaders, only politicians and tyrants. It will take leaders to address the debt issue.

#39 Yukon Elvis on 06.08.19 at 5:40 pm

The USA will not address the debt until they have to. If they imposed a VAT like the UK, Germany, Australia, Russia, China, or even Canada they would pretty much be “out of the woods” so to speak. Of course the party/government that imposed such a tax would never get re-elected but they will do what they have to do when the time comes.

#40 akashic record on 06.08.19 at 6:01 pm

CBC radio morning show lately deals with the deficit every day. The provincial deficit, that is, bashing the provincial government evil deficit cutting measures. So far far they have not found one justified.

#41 BobC on 06.08.19 at 6:03 pm

Everybody always talks about the need to cut social security benefits, a program that we pay into our entire lives.
Just not cool to bring up welfare ($800 billion) or illegals ($135 Billion). Maybe we can stop with the political correctness nonsense when the stuff really hits the fan.

https://www.heritage.org/welfare/commentary/welfare-america-1-trillion-tab-and-rising

https://www.washingtonexaminer.com/record-135-billion-a-year-for-illegal-immigration-average-8-075-each-25-000-in-ny

#42 Hawk on 06.08.19 at 6:05 pm

#5 yvrmc on 06.08.19 at 1:09 pm
I have never understood how governments get away with this unbridled spending.

=========

I have never understood how pensive and educated people can’t figure out that government itself IS the problem in the first place.

#43 akashic record on 06.08.19 at 6:08 pm

#30 Sail Away on 06.08.19 at 4:43 pm

Canada joins Germany, Rwanda and Cambodia as countries guilty of genocide. An international investigation has been opened. Our handsome idiot of a PM needs to go.

For many reasons, but this is not one of them.
If that’s what needed to put an end to this, then so be it.

#44 Dolce Vita on 06.08.19 at 6:12 pm

If a nation goes bankrupt its bondholders end up taking a haircut (e.g., 50% in the case of Greece). Political instability can result as happened in Argentina 2001 but not always (Iceland 2008, Russia 1998, Mexico 1982).

Most of Canadian debt is held by Canadians and/or by their Canadian proxies such as Pension Funds, Insurance Companies, etc. (about 75%). Most US debt is held by Americans and/or by their American proxies (70%).

You begin to worry when increased Gov. borrowing diverts money away from the economy that could be put to better use. You also begin to worry when too much debt results in Gov. services being cut back to its citizens to lower the debt (e.g., Greek pensions cut back 40%).

Canada is a LONG WAY away from a situation like what happened in Greece or Iceland (both of which are bouncing or have bounced back). I worry more about HOUSEHOLD debt as that saps consumer spending which affects investment portfolio performance (Mr. Market relies on Mr. Consumer continuing to spend and generate profits).

That’s what I’d worry about.

————————

On the Cdn. Deficit blame game, this chart worked up by CBC (before chortling at the $600 MM trough):

https://i.imgur.com/DKsgqED.jpg

Morneau 2018-2019 projected deficit is $15.1 billion, less the risk amount.

From the above you will figure out why I am a Chrétien/Martin Liberal and not a Trudeau Liberal (both of them). Chrétien, in 1993, took a Mulroney -$39 B deficit and turned it into a +10.6 B surplus by 2004. Martin by 2006 increased the surplus to +$13.2 B surplus.

Harper rode on Martin’s coattails yet managed to whittle a +$13.2 B surplus to +$1.9 B by 2015…and then, along came Justin…

Instead of sending Chrétien to China to get Canadians released, send him to Ottawa to run Gov. and send Little Potato to China and with any luck, they’ll jail him (no luck needed, he has a big mouth and statistically speaking and without a doubt, he will say something stupid that will piss of the Chinese).

#45 AACI Homedog on 06.08.19 at 6:23 pm

To whom is all this money owed ? To China ? Arent they in debt too ?

#46 The Truth on 06.08.19 at 6:29 pm

Nothing’s getting paid down. Ever. We’re great at kicking things down the road. (Gotta admit I am too) Like carbon emissions. Globally we burn 110 million barrels of oil a day. I did the math (too much time on my hands) that’s equivalent to 67,000 Olympic size swimming pools per day. We’re kickin that puppy down the road. So bills, no problem.

#47 Ryan Lewenza on 06.08.19 at 6:32 pm

Frustrated Kiwi “PS I suggest looking at who Japan owes its debt too. 40% is to its own reserve bank! 55% is bonds owned by Japanese citizens. It could cancel that 40% at the sweep of a legislative pen. But that would freak out investors like Ryan who don’t understand how money actually works (because it’s not taught in mainstream economics classes).”

It’s that simple?! How would the roughly 20 million Japanese citizens who are over the age of 65 and depend on the government bonds to pay for food, shelter etc.? If the government did what you propose their economy would implode overnight, people would be homeless and starving on the streets. But what do I know, I don’t understand how money actually works. – Ryan L

#48 akashic record on 06.08.19 at 6:40 pm

Ryan, most of us here have an investment portfolio. Mostly a diversified.

Has our portfolio growth benefited from the Canadian federal and provincial debt or the debt of other countries? If it did, how should we feel about it?

#49 Ryan Lewenza on 06.08.19 at 6:49 pm

Michael “Hi Ryan, Oboy! What a column! Some questions if I may. Why does a sovereign government the size of the United States of America *need* to balance its budget? It is a currency-issuing entity. It “prints” money as required it cannot go bankrupt.”

Technically the US government can’t go bankrupt since the US Treasury can just print money. Tomorrow they could print a $22 trillion note and pay everyone back. But this would of course blow up the US/global economy due to hyperinflation similar to that seen in Germany the 1920s, Zimbabwe in the 2000s and presently Venezuela. Since the US is the world’s reserve currency it would bring down the global financial markets and possibly lead to another world war between the US, China and other nations. There has to be another solution. – Ryan L

#50 acdel on 06.08.19 at 6:52 pm

Interesting article related to this blog.

https://business.financialpost.com/investing/the-good-times-are-over-for-the-australian-economy-and-canadians-would-be-wise-to-take-note#comments-area

#51 Juve101 on 06.08.19 at 6:56 pm

Excellent article today. Super important and not at all boring.

#52 A World War on 06.08.19 at 7:09 pm

China and Russia years ago signed a mutual defence agreement. The USA doesn’t have the technology to fight them both, and any war needs boots on the ground to be won. The only war possible will go hot, and USA doesn’t have the defence capabilities to stop the Russian and China offensive weapons that they now have. Hypothetically the USA cannot go to war anymore.

#53 Hawk on 06.08.19 at 7:36 pm

There is no, non-drastic solution to the US government debt problem. The proposed solution a long time ago by the corrupt leaders at the time was that they would “grow the economy” and increase tax revenues to pay off debt. Now I think pretty much everyone, including the unwashed know that’s impossible. So the remaining options are:

1. Default on debt which destroys credibility for generations.

2. Sell US assets (maybe Alaska / Hawaii ) and pay off debt, which for them, is unthinkable.

3. Inflate away the debt by printing money and giving it to creditors, which will cause hyperinflation.

I’d bet that when the time comes, they’ll go with # 3

#54 joblo on 06.08.19 at 7:38 pm

Ryan, Ryan, Ryan let it go.
Humans are gonna be exstinct in 12 years so…..
How about a 12 year spend like a Drunken PM portfolio please?

#55 Linda on 06.08.19 at 7:42 pm

I’ve been wondering about ‘the debt crisis’ for quite some time. Pretty much everyone & every country has debt. Last time I checked, the mighty Google came back with 3 or so countries that were considered ‘debt free’.

As I understand matters, the taxpayer (that would be us) is the lucky ‘owner’ of all government debt. Owing ourselves doesn’t sound that bad, except that the debt is often purchased by external parties. External to the municipality, the province or the country. It may or may not matter who the debt is payable to in the long run – if a country defaults on payments the citizens will presumably be impacted in a negative fashion, regardless of whether they ‘own’ the debt or not. The main issue seems to be the ability to control the fallout. Given the bailout of various indebted nations during the 2008 financial meltdown, it appears that if enough debt is owed externally that the impact is much more severe than if the debt is owed to a countries citizens. If true, then it would be interesting to know how much of a countries debt is owed to external parties.

#56 acdel on 06.08.19 at 7:52 pm

#52 A World War

Nonsense; if the U.S. wanted or had to, using there arsenal (mostly what we do not know about) they could wipe out any country in a matter of hours.

The question is why? We humans are forced to live with one another in this little blue speck in the cosmos.

Biggest threat are special interest groups that are too lazy to get off there butts and work for a living to only beg, ask, us for money (for whatever cause they can think of) so they can shop on the Champs; remember Haiti. So full of lies, oh ok, to be diplomatic correct so full of mistruths, etc!

#57 Ryan Lewenza on 06.08.19 at 8:05 pm

AACI Homedog “To whom is all this money owed ? To China ? Arent they in debt too ?”

The debt is held by almost everyone. The largest holders are China and Japan but it’s also in pension funds, mutual funds, individual investment accounts etc. No one would be spared if this blows up. Again this is not my base case view but we should be prepared for anything over the next decade. – Ryan L

#58 not so liquid in calgary on 06.08.19 at 8:05 pm

@ A Dollar is a Dollar is a Dollar on 06.08.19 at 1:10 pm

=========================================

You mean like PM Trudeau and LavScam, or how about Vice-Admiral Norman? And should we also mention his “slight” miscalculation re: deficits/debt?

#59 acdel on 06.08.19 at 8:10 pm

Smoking Man the Forex trader who has mentioned many times, wink, how well you have done.

This one is for you; pennies in the bucket for you.

https://www.dailymail.co.uk/sciencetech/article-7116559/NASA-allow-TOURISTS-aboard-International-Space-Station-starting-2020.html

Please take high def video footage to finally put those flatliners to shame! :)

#60 oh bouy on 06.08.19 at 8:18 pm

@#52 A World War on 06.08.19 at 7:09 pm
China and Russia years ago signed a mutual defence agreement. The USA doesn’t have the technology to fight them both, and any war needs boots on the ground to be won. The only war possible will go hot, and USA doesn’t have the defence capabilities to stop the Russian and China offensive weapons that they now have. Hypothetically the USA cannot go to war anymore.
__________________________

So wrong.

#61 Bruce MacLachlan on 06.08.19 at 8:37 pm

Hey Ryan can you comment on how government spends tax dollars to build stuff for us like roads and buildings.
But these assets we create with these dollars are not counted as assets. Therefore we have deficits because our assets created are not counted in the ledger.
I know there are expenses that are ongoing for wages and supplies, but I feel our supposed debt load would be lower if we counted the assets.

#62 IHCTD9 on 06.08.19 at 8:53 pm

Lots of good comments tonight. I like to look wide angle and long term, I find this stuff fascinating! So here is what we have to look forward to in the decades to come:

1. More debt anywhere you care to look.
2. Declining fertility
3. Reduced marriage and cohabitation
4. Exploding single Motherhood
5. A transitional economy WRT robots/AI (good?)
6. Declining quality of economic immigrants
7. Possible outright population stall/decline.
8. Draconian cost increases for anything related to government and energy.

IMHO, the base requirements for societal progress in the West are eroding. The government is expected to fix it. The cost will be too high, societal progress will stall, and then start reverting. The kick-off will be when at long last, the debt needs to be handled to avoid the destruction of national currencies (ie, oppa Zimbabwe style).

#63 Really on 06.08.19 at 8:56 pm

The USA hasn’t won a war since Vietnam, and has been fighting in the Middle East since 2001 with no success. In fact the Americans have not fought against a Super Power before, let alone two of them. The Pentagon has already simulated a war, and lost on all fronts.

#64 acdel on 06.08.19 at 9:04 pm

#59 acdel

Flat earthers to shame! Can’t wait for the video! :)

#65 IHCTD9 on 06.08.19 at 9:17 pm

#52 A World War on 06.08.19 at 7:09 pm
China and Russia years ago signed a mutual defence agreement. The USA doesn’t have the technology to fight them both, and any war needs boots on the ground to be won. The only war possible will go hot, and USA doesn’t have the defence capabilities to stop the Russian and China offensive weapons that they now have. Hypothetically the USA cannot go to war anymore.
———-

Hahaha! Neither China nor Russia can put boots on the ground anywhere that requires crossing water. The only inter-continental offensive weapon either one has are nukes. China’s ICBM’s (like most of their products) are probably garbage, and they do not posses a bomber capable of delivering a nuke in bomb format. Russia is in the same boat, no way to move the boots. Offence = nukes for both countries. If they launched on the US, that would be the end of planet earth. Total waste of time working on these nukes, they should be working on something deployable…

When it comes to Global conflict, there is only one country on the entire planet that can project power without launching ICBM’s, and that is the good old USofA.

#66 crowdedelevatorfartz on 06.08.19 at 9:23 pm

@#54 joblo
“Humans are gonna be exstinct in 12 years so…..”
+++++

Step away from the bottle….

#67 ulsterman on 06.08.19 at 9:48 pm

Today i got a first hand view of this debt explosion. Hadn’t walked along hypster Commercial Dr in Van for a long time. Stopped at a real estate agent’s window. One bedroom apartments for $475-525k. I looked at similar units in the same buildings in 2001. East 7th went for $80k and the trendier East 3rd hood went for $93k. a six-fold increase in 18 years and wages up what, 35%? Crazy, crazy, debt-soaked world. I looked at some of the 20 somethings and bet that they wouldn’t even believe me if i told them the units went for $80 back in the day.

#68 ImGonnaBeSick on 06.08.19 at 9:56 pm

#5 yvrmc on 06.08.19 at 1:09 pm
I have never understood how governments get away with this unbridled spending. There will come a financial judgement day . Am I naive , what is wrong with a legislated legal duty to balance budgets every year ?

+++++++++++++++++++++++++++

Because they wouldn’t balance it by cutting anything. They’d balance it by increasing taxes on everything and everyone… Face it, no one’s putting big boy pants on, look at Ford, he tries to cut anything and they wheel a guillotine out to the front of Queens Park, Taras Nutsack threatens to throw a grenade in the house. No one’s cutting anything. Our only hope is inflating all the debt to nothingness…

#69 IHCTD9 on 06.08.19 at 10:21 pm

#63 Really on 06.08.19 at 8:56 pm
The USA hasn’t won a war since Vietnam, and has been fighting in the Middle East since 2001 with no success. In fact the Americans have not fought against a Super Power before, let alone two of them.
——-

Yes, that is correct. The Middle East has withstood the full force of the US Arsenal. The USA threw everything they had at them, but were driven back. They just couldn’t overcome all those pickups with .50 cals mounted in the bed, and all those home made pipe bombs.

Come on buddy! Do you actually think the US is unable to take out the ME if it wanted to? I mean, Israel took out half the Arab world in 6 freaking days all by itself with a 20:1 kill ratio. Is Israel so much more powerful than the USA that it could take out 3 Arab countries simultaneously in less than a week?!

Gimme a break!!

Also FWIW, the US DID fight the only other super power that has ever existed other than themselves – and won.

#70 oh bouy on 06.08.19 at 10:27 pm

@#62 IHCTD9 on 06.08.19 at 8:53 pm
Lots of good comments tonight. I like to look wide angle and long term, I find this stuff fascinating! So here is what we have to look forward to in the decades to come:

1. More debt anywhere you care to look.
2. Declining fertility
3. Reduced marriage and cohabitation
4. Exploding single Motherhood
5. A transitional economy WRT robots/AI (good?)
6. Declining quality of economic immigrants
7. Possible outright population stall/decline.
8. Draconian cost increases for anything related to government and energy.

IMHO, the base requirements for societal progress in the West are eroding. The government is expected to fix it. The cost will be too high, societal progress will stall, and then start reverting. The kick-off will be when at long last, the debt needs to be handled to avoid the destruction of national currencies (ie, oppa Zimbabwe style).
________________________

sounds like a Margaret Atwood novel

#71 S.Bby on 06.08.19 at 10:29 pm

We will eventually go the way of Venezuela…

#72 Indebted governments on 06.08.19 at 10:31 pm

On the upside, a government debt like this means the central bank could not in good conscience increase interest rate to elevated levels: it would bankrupt nations.
This means, your mortgage rate will stay palatable.

#73 Ronaldo on 06.08.19 at 10:42 pm

#46 The Truth on 06.08.19 at 6:29 pm
Nothing’s getting paid down. Ever. We’re great at kicking things down the road. (Gotta admit I am too) Like carbon emissions. Globally we burn 110 million barrels of oil a day. I did the math (too much time on my hands) that’s equivalent to 67,000 Olympic size swimming pools per day. We’re kickin that puppy down the road. So bills, no problem.
—————————————————————

Well I have a stat here that will more than match yours. Globally we consume 23 million tonnes of coal/day. That would be equal to 2300 trains each one mile long and containing 10000 tonnes each and stretching from Vancouver to Fredricton, NB. That’s daily. I can’t even imagine how many swimming pools that would fill. I’ll let you figure that one out.

Putting it another way. This represents a train as above stretching 840,000 miles into space. And that’s annually. That’s 3.5 times the distance from earth to the moon.

Putting it another way. This represents a continuous train circling the earth 33.5 times each year.

Why havn’t we been choked out yet? Skies look pretty clear over Nanaimo tonite.

#74 PeterfromCalgary on 06.08.19 at 10:42 pm

I think lenders who are holding on to low interest long term government debt are the ones who should be really worried. Imagine how quickly the real value of these bonds would decline if we returned to 1970s inflation for a while.

#75 Tccontrarian on 06.08.19 at 10:54 pm

Boring?
Depends on priorities I suppose. A ‘friend’ told me once that he found financial stuff boring too. I’m quite certain his retirement will be very ‘exciting’, however (now 57 with virtually no savings).
Some people have no foresight!

TCC

#76 Ponzius Pilatus on 06.08.19 at 11:18 pm

Joe “-this does not quite make sense
-from your graph G7 Nations Debt to GDP Ratio
-with Japan at 234%(3 times as bad as Canada, 4 times as bad as Germany), why has there not been a meltdown there?

It’s coming for Japan. Well-known economist John Mauldin says Japan is a bug in search of a windshield. There are a few reasons why there has not yet been a meltdown. First they’ve had a stagnating economy for years with very low interest rates which has allowed them to continue to service the debt. Second their debt is largely held domestically by retired Japanese, pensions etc. versus outside investors. This allows them to better contain the problem. But this only delays the problem rather than solving it. – Ryan L
———–
This has been predicted for about 30 years now.
And yet the Japanese keep on churning out Toyotas.
They are a resilient bunch.
Not like the wimpy Canadians who protest every time gas goes up a cent.
Shintoism, Google it.

#77 Lost...but not leased on 06.08.19 at 11:20 pm

C’mon Ryan and others..

We are in the fiscal end times.

In early 1980’s I too was very concerned re: the DEBT and DEFICIT..aka OMG…. the per capita share of each of the aforementioned.

The Crash in the late 2000’s awakened many to the scam of the financial system( ALL WARS ARE BANKERS WARS ).

Low interest rates will be the norm…unless the Banksters choose to game the system like Great Depression to make the 1% ers even richer.(….and of course..as history has shown repeatedly…WAR solves a lot of problems for the oligarchs and their toadie politicians)

OTHERWISE…To support the fiscal house of cards..low interest rates are the solution….as the fiat currency is the crack cocaine for fiat wealth.

RE market was goosed..now we are to genuflect to the other fiat currency -driven mammon of the stock market.

Rinse and Repeat..

#78 Vampire Studies (doctoral thesis) on 06.08.19 at 11:30 pm

61 bruce – the debt remains, and must be serviced. If
my house is worth $500k and I have a $300k
mortgage, I am in debt, though the balance sheet will
say equity of $200k.

Unfortunately government assets can be very illiquid.

#79 Kothar on 06.08.19 at 11:39 pm

The US also has the world reserve currency which doesn’t hurt.

#80 Keynesian Optimist on 06.08.19 at 11:52 pm

Not boring at all, Ryan! Good discussion.

Stay focused on the ratios…it’s if Germany’s and the U.K’s ratios significantly drop and the U.S. rises will there be need to worry. Everything is relative, Albert!

#81 The Great Gordonski on 06.09.19 at 12:30 am

#9 Expresso. You should be withdrawing out of your RRSP as quickly as possible before 71 to avoid the tax trap that wait. If possible retiring at 55 or 60 and reducing all income to tax beneficial dividends with reduce cash flow into a lower tax bracket ( plan ahead so that your spouse has exactly the same amount in her acct as you) and draw down RRSP every year to slide under the higher tax brackets when CPP and OAS kick in. Plan ahead….way ahead….a decade should do it.

#82 will on 06.09.19 at 1:29 am

Nothing boring about this post. We’re all into it. No need to apologize. But when are you going to address the business of the petrodollar?

“The US$ is the world’s reserve currency.”

Yeah yeah yeah. We know that. We need to talk about that diminishing role. If you are not aware of this then clearly you are informed by the MSM only.

My next read is going to be Ben Graham’s “World Commodities and World Currency.” In his memoirs Ben Graham said he thought he would be most remembered for his ideas in this book. Boy was he wrong! But wait! He probably is very well remembered – but only by the very people who don’t want it to happen!

#83 Old Dog New Tricks on 06.09.19 at 1:39 am

If we could just stop adding so much to the pile. It would be possible that given decades and inflation there would be really no great need to pay off any debt. Am I right?

#84 RWZM on 06.09.19 at 4:02 am

“declining population growth rates” – God forbid the second derivative take a bit of a hit

We have fresh people coming in to keep the demand and the prices high forever, doncha know

#85 The Great Gordonski on 06.09.19 at 7:09 am

Canada now subject of International Court charge of genocide brought on by another if Trudeau’s stupid statements.

https://torontosun.com/opinion/columnists/kinsella-trudeaus-genocide-comment-sparks-international-probe

This is what decolonizing Canada and white hate looks like. Hate yourself Canada, you’re murdering white ways mean confiscation of your assets and eternal shame.

#86 Don on 06.09.19 at 8:45 am

Let’s get these major energy infrastructure projects going so we can generate more tax revenue. There is nothing to replace the sector.

#87 NoName on 06.09.19 at 8:50 am

This dude is awesome, plus closet musician.

https://www.instagram.com/p/Bychk0TnSPa/?igshid=19vqaftl40y55

#88 dharma bum on 06.09.19 at 8:55 am

It’s interesting to think about why any particular individual would care even one iota about government debt, when as private individuals, they themselves are so deeply pickled in debt and are not seemingly worried in the least about their own predicaments.
We live in a world of free loans and zero consequence bail-outs.
Debt?
Meh.

#89 DLee on 06.09.19 at 9:21 am

#63 Really on 06.08.19 at 8:56 pm

Uhmm … Iraq 1990-1991? That one doesn’t count maybe.
But that was a beautiful display of how quickly the USA can dismantle a large army (5th largest in the world at the time) at will.

#90 Ryan Lewenza on 06.09.19 at 9:22 am

Bruce MacLachlan “Hey Ryan can you comment on how government spends tax dollars to build stuff for us like roads and buildings. But these assets we create with these dollars are not counted as assets. Therefore we have deficits because our assets created are not counted in the ledger.”

This is a great point. What is the value of the Grand Canyon, all the sea ports, or the State of Alaska, for example? The US government has a lot of assets that are worth billions but they aren’t worth much if they don’t ever sell them. And these would only be sold if things really go sideways so the assets are not a panacea. The assets help and make the situation a little less dire but they do not eliminate the problem. – Ryan L

#91 David Prokop on 06.09.19 at 9:29 am

Since 2009 US companies have spent $6T on stock buybacks. Quite a number when you compare it to US government total outstanding debt of $21T, which took a century to accumulate. All that money came mostly from borrowing via the bond market. Corporations have more buying power than governments. When you hear stories about governments like Egypt, Ukraine or Pakistan begging IMF for a $5-$10B loans you want to laugh. It’s a pocket change for Bezos likes. We are living in a crazy world where cheap money has distorted everything. How and when will it end? Don’t know when but I know it won’t be pleasant.

#92 Classical Liberal Millennial on 06.09.19 at 9:39 am

#6 A Dollar is a Dollar is a Dollar
– – –
Wow. How does it feel to be just another mindless partisan hack in the comments section? You’re really not very intelligent, are you?

#93 Leo Trollstoy on 06.09.19 at 10:18 am

Commentators have been predicting doom because of the US debt to GDP for half a century

Nothing will happen

#94 Pentagon And Rand on 06.09.19 at 10:25 am

#69 IHCTD9 – They have already done war simulations and cannot win a war with the current Super Powers. I suggest you send them a memo telling them they have it all wrong.

#95 Puffle on 06.09.19 at 10:32 am

I don’t think the author of this post understands how the monetary system works. Why would the US government want to run a surplus and drain the money supply? What is the ultimate goal of this strategy? To continue running surpluses until the debt is paid off? That would basically destroy almost the entire money supply.

Even Warren Buffett now realizes that the debt and deficit isn’t really a problem: “Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods,” Buffett writes.

We are operating in a debt-based fiat monetary system. Net government debt enables net private sector savings. It’s impossible to have net private sector savings without net public sector debt. Anyone who advocates for paying off the national debt really has no understanding of our current monetary system.

#96 Tony on 06.09.19 at 10:42 am

Re: #53 Hawk on 06.08.19 at 7:36 pm

America will turn communist just like Red China. That will be the solution.

#97 crowdedelevatorfartz on 06.09.19 at 10:55 am

@#76 Pontificating Plots
“This has been predicted for about 30 years now.
And yet the Japanese keep on churning out Toyotas…”
+++++

Lets see.
Japan’s debt is the highest , per capita, for any 1st world nation.
Japan’s population is the oldest, on average, for any first world nation.
Japan’s immigration policies are some of the most stringent for any first world nation.
Japan’s economy has been suffering through recessionary stagflation for decades.
The rotating govts at the helm have been lowering income tax and raising sales(VAT) taxes with dubious success.
The japanese govt had to slow down its implementation of the VAT over the past several years due to its negative effect on their economy.
The next rise in VAT will be this Fall.
Old people dont spend money, they save money.
Japanese people are some of the most prolific savers of any first world nation and the vast majority put their money in savings accounts with the Post office ( a national bank in all but name).
Japan has spend billions over the past several decades on massive infrastructure projects to kick start the economy to little or no avail.
Most car part manufacturing in Japan is performed by robots not humans.
Most Toyotas trucks for the North American market are assembled in Texas ….but thats another story.

Japan is teetering on the financial abyss with a rapidly ageing population and fewer workers/tax payers to pay for their rising health care.
Keep an eye on their economy and the value of the yen….possibly a bell weather of the world economy.

Myself?
I’m more interested in Germany’s rising unemployment, slowing economy, all while their leader is about to retire and no one else seems ready to take the reigns…

#98 crowdedelevatorfartz on 06.09.19 at 11:04 am

@#85 The GG
“Canada now subject of International Court charge of genocide brought on by another if Trudeau’s stupid statements.”

+++++

Let him keep talking.
The more he weeps, blithers and babbles in Social Justice double speak ….the further he drops in the polls.

I give him 6 months after the election defeat to be punted as leader.
What an international embarrassment.
Almost as unpopular as his intellectually out of touch “hug buddy” Macron.

https://www.cbc.ca/news/politics/a-tale-of-two-leaders-what-trudeau-and-macron-can-and-should-learn-from-each-other-1.5168050

Is it me or does Trudeau’s body language seem a bit stand offish?

#99 jess on 06.09.19 at 11:17 am

….”About 40 “vulture funds”, including companies controlled by Goldman Sachs, Cerberus Capital Management and Apollo Global Management, have rushed to seek authorisation from the Central Bank following new legislation banning unregulated entities from owning Irish mortgages, reports the Sunday Times. The vulture funds involved include Beltany Property Finance, a Goldman Sachs affiliate that triggered outrage in 2016 when it threatened to evict more than 100 families from their homes in Tyrrelstown, Co Dublin.”

https://www.irishtimes.com/business/banker-pay-carbon-taxes-and-regulating-vulture-funds-1.3919828

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#100 Dogman01 on 06.09.19 at 11:33 am

Ok – who the heck is this money owed to?

Like really Alien banisters….

There is a saying; if I owe you $100 I have a problem, if I owe you $1 Million, you have a problem.

#101 Dogman01 on 06.09.19 at 11:35 am

Alien Banksters

Damm auto-correct

#102 Ponzius Pilatus on 06.09.19 at 11:56 am

#89 DLee on 06.09.19 at 9:21 am
#63 Really on 06.08.19 at 8:56 pm

Uhmm … Iraq 1990-1991? That one doesn’t count maybe.
But that was a beautiful display of how quickly the USA can dismantle a large army (5th largest in the world at the time) at will.
————–
Just like the Weapons of Mass Destruction, the size and capacity of the Iraqi army was faked.
You’re spending too many hours playing war video games.

#103 Ponzius Pilatus on 06.09.19 at 12:07 pm

#97
Trust me.
Germany and Japan will do just fine.
Both countries had to start from Groind Zero after the war and are now 4th and 3rd.
Worry about Great Britain, if you have to worry.

#104 jess on 06.09.19 at 12:10 pm

when will it matter? ….when the unknowns are known

https://www.theatlantic.com/video/index/590299/atomic-soldiers/

#105 NoName on 06.09.19 at 12:42 pm

@ farts

Body build, paint and some assembly robots.
Everything else humans.

In 2007-ish my old employer sent me state side take a look at a machine that was custom build for us, and while was there i strike conversation with dude that was lead engeener for some other machine that cut my eye. He told me that machine was assembling
turbo chargers for ecoboost engines, it was impressive to see it how puts all of it together.

Dude was funny he sed to me, smaller parts you are handling bigger machine you need, so i replayed what about machine that makes and classify plastic dust by size, it separates sizes smaller particle than white blood cells on one, bin less than 10micron, and bigger than that up to 25-30micron in second, and “chunks” bigger than that in 3rd container/bag. What do you think how big it is? He guessed but he was wrong, its 3floors big.

Knowing all that its easy to understand why is hardon collider 27km long… They play with few atoms at time…

#106 Willy H on 06.09.19 at 1:21 pm

Nothing boring about this post.

Raises serious ethical questions in terms of debt transfer from one generation to another.

If we are some years away from “the reckoning” what kind of mess are aging baby boomers going to leave Gen X and beyond???

#107 crowdedelevatorfartz on 06.09.19 at 1:26 pm

@#103 Precocious Pontificating
“Groind”
++++

Is that a new word, a Freudian infatuation, or you forgot the apostrophe?

As for “Great” Britain…. the fix was in when the former PM Cameron, in a spineless lack of leadership ( which all leaders seem to be infected with these days) decided to allow the unwashed rabble to decide on ending the most important/complex trade agreement they have ever signed with a referendum vote to leave….voters basing their decisions upon 15 second sound bites and misinformation…
Personally I’m going to enjoy Boris Johnson writhe , squirm and stumble through his mercifully short leadership as the economy tanks, Scotland separates, Northern Ireland returns to its endless strife, the Pound falls off a cliff, London’s Financial district flees, and opposition leader Nigel Farage swills beer and hosts Putin to a Karl Marx statue unveiling……

Mad dogs and Englishmen

#108 Dissident on 06.09.19 at 1:37 pm

Notice how the deficit drastically reduced under Obama, was on a nice downward trajectory, and then Trump grabbed the steering wheel and promptly blew away all that recovery.

#109 Frank Casmere on 06.09.19 at 2:05 pm

Your not going to like the answer but socialism is the main reason. The mass majority of people in Canada pay less in taxes than they get in benefits. This is why they borrow and get away with paying interest less than inflation.

#110 Nice Try on 06.09.19 at 2:47 pm

#89 DLee – This was in 1990, and Iraq was hardly a Super Power. Its 2019 and the US still has no control over Iraq, because they are still in battle there.

#111 NoName on 06.09.19 at 2:52 pm

#108 Dissident on 06.09.19 at 1:37 pm
Notice how the deficit drastically reduced under Obama, was on a nice downward trajectory, and then Trump grabbed the steering wheel and promptly blew away all that recovery.

Not that i am defending orange guy, but here is a better chart debt vs present. 6 more yrs and we will know who did better.

https://www.google.com/amp/s/amp.businessinsider.com/trump-national-debt-deficit-compared-to-obama-bush-clinton-2019-2

#112 Former Navy Chief on 06.10.19 at 9:54 am

As one who has been many times the drunken sailor on leave, I can tell you that once the money ran out, this sailor made his way back to his ship for sleep without borrowing to spend more…unlike our government that continues the spendfest!