Ottawa posts $14.2B surplus

[CaptainCrunch]

Originally Posted by IntenseFan

Oh, I don't think my simple population to debt calaculation is economically meaningful in the least. There are all sorts of ratios and formulas going into these types of measures that I couldn't begin to understand unless I was an economist.

The reason I did a quick calculation of the per capita / per person share is because that is what that debt clock in Vancouver was doing. It took the total debt, divided it by the population and stated "your share". I always found that to be interesting.

As I recall, when the debt clock started, it was around $20k per person, on the basis of that calculation. It has shrunk significantly (no doubt due to factors such as debt reduction, population increase and perhaps even currency valuation).

I thought the debt clock started higher then 20k per person.

Its interesting that the Canadian dollar increases should significantly increase the effectiveness of the debt repayment as long as it holds, but it the long term might actually negatively effect the ability to pay the debt down due to the impact on some of Canada's key industries.

[Lurch]

Originally Posted by CaptainCrunch

I thought the debt clock started higher then 20k per person.

Its interesting that the Canadian dollar increases should significantly increase the effectiveness of the debt repayment as long as it holds, but it the long term might actually negatively effect the ability to pay the debt down due to the impact on some of Canada's key industries.

Why? I'm about 99.9% sure Canada denominates all of its debt in Cdn$$, so the exchange rate does not matter.

Debt per person means little - it is debt as a portion of the economy that is generally held as the most important variable. Same as with a person - if you make $125k per year and have $50k in debt its a lot different than if you make $30k per year and have that same debt.

By most measures, Canada is now in a superior position to the US, although the US problem is not really all that bad. Our net debt is now running at about 25% of GDP while the US is starting to push towards 40%. See Chart A2 in this link - Canada has improved from about 71% in 1995 to 25% today. Note that the chart includes all levels of government.
http://www.budget.gc.ca/2007/bp/bpa2e.html

[IntenseFan]

Hey Lurch, a bit OT, but those Italian numbers from that link are crazy. That country is pretty much insolvent and looks like it has been for many years. How can that be tolerated, not just by Italians, but by creditors? Nuts.

By decreasing it's net debt by such a major amount, Canada has freed up a ton more $$$ for public spending, tax reductions, whatever the heart may desire. I guess the question is, has anyone noticed the difference?

[CaptainCrunch]

Originally Posted by Lurch

Why? I'm about 99.9% sure Canada denominates all of its debt in Cdn$$, so the exchange rate does not matter.

I don't know if thats true or not, remember I'm not a fancy pants economic major

However most debts are created on the international stage and yes Canada measures its debt in terms of Canadian dollars, however when Canada took out it loans the Canadian dollar was worth about 20% less then it is now according to measurements of its own currancy, and I haven't seen a downward adjustment published on our national debt due to the increase in currency, so based on that I'm assuming that Canada should have logically reduced its overall national debt by the increase in the value of Canadian currancy.

I also believe that the World bank measures debt based on the benchmark dollar and the Canadian dollar has become equal to the U.S. dollar so Canada's repayment would theoretically work based around the Canadian dollar +20% value give or take a few percentage points.

But I could be wrong.

Originally Posted by Lurch

Debt per person means little - it is debt as a portion of the economy that is generally held as the most important variable. Same as with a person - if you make $125k per year and have $50k in debt its a lot different than if you make $30k per year and have that same debt.

I centainly don't disagree on this, on a local scale the Canadian economy is certainly strong, in a international scale the desirability to invest in the Canadian economy has taken a bit of a hit because its now more expensive to invest and manufacture goods in Canada on an international scale.

Originally Posted by Lurch

By most measures, Canada is now in a superior position to the US, although the US problem is not really all that bad. Our net debt is now running at about 25% of GDP while the US is starting to push towards 40%. See Chart A2 in this link - Canada has improved from about 71% in 1995 to 25% today. Note that the chart includes all levels of government.
http://www.budget.gc.ca/2007/bp/bpa2e.html

Oh I don't disagree on that in terms of international purchasing power, our dollar is equivalent so we can buy on an equivalent basis to the U.S. dollar and invest on an international level at the same equivalency. However the strong dollar does make Canada slightly less desirable as our costs of export goods and our cost of manufacturing goods has significantly increased over the past 6 months, and when your competing with nations with significantly lower valued currency your at a marked disadvantage.

But I could be completely wrong here.

Go easy on me.

[jolinar of malkshor]

Originally Posted by IntenseFan

Hey Lurch, a bit OT, but those Italian numbers from that link are crazy. That country is pretty much insolvent and looks like it has been for many years. How can that be tolerated, not just by Italians, but by creditors? Nuts.

By decreasing it's net debt by such a major amount, Canada has freed up a ton more $$$ for public spending, tax reductions, whatever the heart may desire. I guess the question is, has anyone noticed the difference?

I think we would have noticed a difference had we not paid down the debt more so.

[simmer2]

Originally Posted by skins

The Canadian government pays something like $30 billion in interest payments every year. That's money that is lining the pockets of banks (some foreign) that could be spent elsewhere or provided in tax relief.

No tax cuts until the debt is at least mostly paid off.

I have a question and a comment for those that are more knowledged than me in this area:

• Can governments write off their interest payments based on what they are putting the money towards? I'm guessing because they are government they can't write anything off because it comes out of their own pockets anyways
• Does the Government of Canada invest its money in anything so it can try and earn additional money from the surplus?
• Jack Layton, NDP leader, doesn't want any money spent on paying down the debt. http://www.ctv.ca/servlet/ArticleNew...825?hub=Canada

Does Mr. Layton not understand simple economics? If we continue injecting money into social programs with a surplus, then what happens when we don't have a surplus? Those programs people have now relied on get removed and that government gets pissed on.

[jolinar of malkshor]

Originally Posted by simmer2

Does Mr. Layton not understand simple economics?

No...he is a commie

[Lurch]

Originally Posted by simmer2

I have a question and a comment for those that are more knowledged than me in this area:

• Can governments write off their interest payments based on what they are putting the money towards? I'm guessing because they are government they can't write anything off because it comes out of their own pockets anyways
• Does the Government of Canada invest its money in anything so it can try and earn additional money from the surplus?
• Jack Layton, NDP leader, doesn't want any money spent on paying down the debt. http://www.ctv.ca/servlet/ArticleNew...825?hub=Canada

Does Mr. Layton not understand simple economics? If we continue injecting money into social programs with a surplus, then what happens when we don't have a surplus? Those programs people have now relied on get removed and that government gets pissed on.

Gov't cannot 'write it off' (I just had a Seinfeld flashback - "they just write it off, Jerrry!"). I can't think of how the concept would even work for a gov't.

Gov't does own assets, and the CPP has significant holdings. All gov't buildings, for example, could be considered assets the gov't has invested in (and is now selling off for the most part). Gov't also used to hold significant share of companies like Petro Canada, but I think this has been divested.

I'm not sure what Layton does or does not know about economics, but it is not clear paying off debt is the best choice for surpluses. I personally believe in it for reasons way to long to get into here, but there are a lot of very good arguments for governments using debt for a wide variety of reasons. Businesses and individuals typically carry debt, some for good reasons and some for bad - gov't likely has similar options. I just don't believe they are capable of making good debt decisions so we should largely take that choice away.

[simmer2]

Originally Posted by Lurch

Gov't cannot 'write it off' (I just had a Seinfeld flashback - "they just write it off, Jerrry!"). I can't think of how the concept would even work for a gov't.

Gov't does own assets, and the CPP has significant holdings. All gov't buildings, for example, could be considered assets the gov't has invested in (and is now selling off for the most part). Gov't also used to hold significant share of companies like Petro Canada, but I think this has been divested.

I'm not sure what Layton does or does not know about economics, but it is not clear paying off debt is the best choice for surpluses. I personally believe in it for reasons way to long to get into here, but there are a lot of very good arguments for governments using debt for a wide variety of reasons. Businesses and individuals typically carry debt, some for good reasons and some for bad - gov't likely has similar options. I just don't believe they are capable of making good debt decisions so we should largely take that choice away.

Thanks Lurch, I didn't want to ask the stupid question, but I appreciate the answer. And yes, Petro-Canada (PC) is not government owned at all anymore. I actually work for them so it's been interesting learning about their "colourful" history. One interesting thing about PC is that there is a requirement that a certain percentage of ownership is Canadian. PC is a mid-size company that is a very attractive company to purchase, but due to the Canadian clause, purchasing it makes it difficult.

I understand your other point as well, you can carry good debt or bad debt. I guess I assumed that most of the govt's debt is bad (money that hasn't been used for investment purposes). This is why I figured it made sense to pay the debt down.

[calculoso]

Originally Posted by Lurch

I'm not sure what Layton does or does not know about economics, but it is not clear paying off debt is the best choice for surpluses. I personally believe in it for reasons way to long to get into here, but there are a lot of very good arguments for governments using debt for a wide variety of reasons. Businesses and individuals typically carry debt, some for good reasons and some for bad - gov't likely has similar options. I just don't believe they are capable of making good debt decisions so we should largely take that choice away.

In my opinion, I think that taking on debt is a good practice when the economy goes bad, but that this debt should / has to be paid off when the economy is good. Today, the economy is good, and so I think that it is good practice to pay the debt off. If not, I don't think the debt will ever be paid off.

[Flash Walken]

Originally Posted by octothorp

So what's the deal with the US and their trillions of dollars of debt... Is this something that is likely to come back and bite them at some point, or can they simply continue to spend without regard for this figure? I think I read something about China trying to buy up US debts from other countries in order to attempt to become a greater US creditor, but I don't really understand the logistics in doing so.

I believe the idea is that for China, the largest supply economy in the world, to be most secure while they grow their own consumer economy, is to tie themselves to the largest consumer economy in the world, and the most resilient, the US economy.

The more American debt and currency china holds, the easier they are able to sway American financial markets and policy. The more integrated, the better, until such a time as they can comfortably utilize their own consumer markets.

High integration in the American economy is also a solid and efficient means of protecting their Energy supply.

[coolsurfer]

I learned in one of my macroeconomic courses that debt actually doesn't matter unless it is held by foreigners. If canadians hold the debt then interest payments aren't a problem because they stay within the Canadian economy. The more important number than the total debt, is the amount that is held by foreign sources. In that case all interest payments are money leaving the Canadian economy. So debt may effect the government, but it doesn't really effect the economy.

Originally Posted by simmer2

• Jack Layton, NDP leader, doesn't want any money spent on paying down the debt. http://www.ctv.ca/servlet/ArticleNew...825?hub=Canada

Does Mr. Layton not understand simple economics? If we continue injecting money into social programs with a surplus, then what happens when we don't have a surplus? Those programs people have now relied on get removed and that government gets pissed on.

[Devils'Advocate]

Originally Posted by simmer2

Does Mr. Layton not understand simple economics? If we continue injecting money into social programs with a surplus, then what happens when we don't have a surplus? Those programs people have now relied on get removed and that government gets pissed on.

In a vacuum it looks wrong. But investing the surplus into education could mean more prosperity in the future.

It's like owing $100,000 on your house, winning $100,000 on a scratch ticket and deciding to invest it in the stock market. Wouldn't it have been smarter to pay off the debt because you never know when you are going to lose your job and you might get nothing back at all from your investments (if you put it in Bre-X or Nortel). On the other hand, if you take that money and invest it in the right places you could have far more than $100,000 in the future.

But in this case I disagree with Jack. From the teens I see at the mall, we're better off paying off what we can than invest in educating those brats. Uh, oh. Gimmee a cane. Somewhere along the lines I got old.