Fitch warns Canada’s debt close to level incompatible with ‘AAA’ status – Understanding Canadian public debt – April 7, 2019
The first question to ask is, how does Canada’s debt compare to the rest of the world? The answer to that question is, it depends on what you factor you’re looking at. If you’re looking purely at the money and foreign investments coming into Canada, from an outsiders perspective Canada looks fantastic when people talk about deficit spending what’s being ignored about Canada is a public sector. It’s huge and large portions of our public sector aren’t classified as public sectors. Canada Post which is Canada’s, USPS (United States Postal Service) equivalent is.
Canada Post in Canada is considered a Crown Corporation, which is a government-owned corporation which is afforded via legislation perks not afforded to Privately owned Corporations in Canada. Now, I’m not entirely against Crown Corporations, my problem with Crown Corporations in Canada, stem from the artificially reduced Canadian dollar, which is going to cause a lot of problems in Canada because prices will not be allowed to deflate to reflect the actual deflating economy. It’s no secret that the world is headed for recession, the world should have already dealt with this coming recession in 2007-2008, however, Obama bailed out the central banks and infused the world economies with cheap money, which for the most part has been drying up.
The financial gains in the stock market, for the most part, have been digital gains and these gains will either deflate or stagnate because wage growth is impossible in an economy that isn’t innovating anything of major substance. Miracles do happen, so I’m not discounting a miracle from saving the world from a great recession, however, Canada is screwed either way, because not only are our deficits and taxes high, we have a dying Private Sector. If not dying, a stagnant private sector, that’s really not producing any manufacturing jobs. I can’t speak on other parts of the world, but this is dangerous territory for Canadians in debt!
Deflation is actually a myth, that started around the same time as job protection legislative Acts like the minimum wage. There really is no such thing as a person being jobless, there is such a thing a people who are working not paying any taxes. The issue with having such a large public sector in Canada is that real wealth is derived from job creators, not from public servants or Crown Corporations. CMHC (Canada Mortgage and Housing Corporation) as an example, makes the Federal Government of Canada appear to be profitable, but don’t forget that Canadians who actually live here are paying for the inflated housing and credit markets also. Sure a lot of foreign capital is fueling Canada’s credit markets, but regular Canadians are paying for all the inflated prices, making matters worse is the artificially low Loonie.
Crown Corporations can work in the event of a strong dollar because they’d be financed with stronger purchasing power, however, the entire economy in Canada is built on attracting what would otherwise be U.S companies into Canada, to sell back to the U.S with a less expensive workforce. These actions that were fueled by Paul Martin and Jean Chretien’s Liberals, unfortunately, have been met by a very naive Justin Trudeau, he appears not to understand that although his father Pierre Trudeau was beloved by a lot of Canadians, his economic policies were such a complete disaster, that Paul Martin had to use economic wizardry to fix it. Stephen Harper, for the most part, did little to change anything in the Canadian economy, he basically did a more efficient job with less than Paul Martin and unfortunately for Justin Trudeau and the rest of Canada for that matter, I’m of the opinion that Canada is on the wrong side of history.
In regards to Canada’s, from an outsiders perspective, it’s very hard for them to understand what’s happening, because most people outside of Canada, don’t know how heavily subsidized many of our large corporations are. So when a person simply looks at the numbers, everything looks great, as an investor myself, if I didn’t live in Canada, I’d assume we were in the same situation as every other country, the problem is we’re not, unlike other G7 countries Canada has the convenience of bordering with the United States, this is why our Public Sectors have been able to expand to the levels they have. America to Canada has been the gift that just keeps on giving, the problem with this is, of course, is the U.S market goes into recession. Even when debt levels weren’t where they were today, even when the Canadian housing market didn’t crash when the U.S market crash, Canada still had to make changes to adjust to the American economy.
Canadians remember the Canadian dollar reaching parity with the U.S dollar and the calls from the private sector to lower the loonie, well, the bill for this intentional money manipulation is coming due and this is something that Justin Trudeau’s deficit spending is going to have to pay for. It’s going to get so ugly and honestly, it’s better in my opinion that it happens sooner rather than later because if it doesn’t, losing our triple-A credit rating will be the least of our concerns.
In closing, let me ask you a quick question and this relates to the video, which province do you think a worse spending problem, Ontario? or Quebec? If you guessed Ontario, you’d be wrong, although Ontario has more debt than California, per person Quebec is in much worse shape.
$64,300 of debt per taxpayer in Quebec, in Ontario the number is $22,500 per taxpaying Ontarian! Yes, I know many people don’t even pay taxes, but what’s important to understand is that Quebec is known as the most unfriendly province in Canada to do business. So you really grasp what I’m saying here, the NDP(New Democratic Party) is one of Canada’s most socialist political parties and they’re not socialist enough for most Quebecers. Because Canada has this system called equivalisation payments, whereby most of the money comes from Canada’s most business-friendly Province Alberta which is so rich that it’s 2 neighboring provinces British Colombia and Saskatchewan get a trickle-down effect from its abundance.
Alberta is so rich that Quebec’s $64,300 of debt per taxpayer shrinks when it’s allowed to be combined nationally. Now, many will say Alberta is rich because of Oil? That’s not true, Alberta is rich because of what it does with its oil. Almost every single province in Canada is energy-rich, however, there’s no incentive for provinces like Quebec to be economically sustainable. Because at least for now, Alberta is so stupid rich that it manages to make all of Canada appear to be solvent. Now, the real problem that’s fastly approaching Canada is the slowdown in the U.S.
Let’s imagine for a moment that jobs were replaced with entrepreneurs, which was the norm when most humans worked in agricultural, all a recession means is consumers aren’t spending money, it’s really never been a big deal unless you lived in a place that was dependent on imports. The problem with recessions and depressions are the people who’ve been living beyond their means, that’s all it is. Canada’s debt-fueled economy along with a huge public sector equates to an economy that’s not allowed to deflate. As an example, minimum wages means that in certain industries if there’s an economic downturn even if the people aren’t buying the employers still have to pay the minimum wage.
Canada in actuality and I’ve been saying this for years now, Canada should actually be the richest place on earth because for one we border with the United States and 2 we’re a developed country. Understand that a developed country means that we have the infrastructure for any businesses to flourish, the problem that Canada created however is that we have price controls all over the Canadian economy and when a recession hits the world, as I’ve been saying Canada will be on the wrong side of history, a lot of people will not be able to comprehend that the Canadian economy has to deflate in order for it grow!
Interesting times ahead.