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Government Debt Problems



April 30, 2010 – Comments (5)

It seems to me that many levels of government around the world have gotten themselves into debt problems that are going to hurt investors.  Mish has a post on Spain, which he says makes Greece looking small.

Canada had political leadership in the 80s, 90s and early 2000s to take on out debt issue and work to reverse it.  When our debt problem became apparent, after Trudeau's era of slaughtering youth's opportunity, Canadians did not have much household debt compared to today.

A huge extra problem with the rising government debt is that household debt is also crippling.  Indeed, because of the demographics of the baby boomers, the vast majority of them had price protection in their homes.  Indeed, interest rates were stepped down from the time many became home owners so many had price declines in housing through refinancing.

I am at the divide line between baby boomer and generation X.  With my generation there were not enough of the secure jobs with excellent pension and benefits and regularly increasing pay.  I have only had that since I moved north.  We also got hit with much higher housing costs relative to unstable wages.  Prior to coming north my wages were like a yo-yo, up and down.  I had years where I saw 20-30% less wages then the prior year.  

Governments are facing these huge debt problems when workers are increasingly facing the type of employment market that I have known and who also have larger levels of household debt.  

I am of the opinion that the Canadian economy kind of limped along because a significant portion of people had little or no disposible income and tended to see a large majority of household income going to taxes and housing.  I used to always say that if people spent the way we did the economy would grind to a halt, and we were supposed to be the double-income-no-kids-have-it-all lifestyle. 

It seems to me that this round of government debt is going to cripple economies for at least a generation, but I don't think the market has caught on yet.

And then, the aging population, who have been financing this mess with their retirement funds, are not going to continue to save as their incomes decline.  The generation stuggling with the unstable employment market and high housing costs simply does not have the disposible income to put aside.  Wages relative to the cost of living is simply down and the generation dealing with this is much more concerned about how to replace an aging vehicle needed for today rather then retirement way off in the future.  If today's needs are a struggle to meet, future needs simply lose importance.


5 Comments – Post Your Own

#1) On April 30, 2010 at 9:31 AM, dwot (29.28) wrote:

Hmmmm, I was thinking to myself while writing this what the fallout of government debt might be, and look at this, 28% of JP Morgan's tier 1 capital is PIIGS debt and 69% of Morgan Stanley's tier 1 debt.

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#2) On April 30, 2010 at 5:23 PM, MikeMark (28.95) wrote:

Well put. So I guess you're not ready to go "all in?"

Hey, that fallout you're showing looks pretty bad. It's nice to know that I'm on the hook for it as a taxpayer through the bailouts that have already happened. That no taxpayer wanted. That we couldn't stop.

How hard is it to move North to Canada? Is it worth it? Or will I just be on the hook for as much or more? ;)

Exodus II: the US moves out of the US. Obama, Geithner, Bernake and most of the 500 on Capitol Hill stay and work for the next 100,000 years to pay the bills. Bernake tries printing up enough money to handle it in the first six minutes, but there isn't a computer on the planet that can handle the number of zeros required. So he goes back to hand written calculus and a printing press. But hey, the 500 pass a law that the economy will grow by 30% a year for the next 20 years, so he figures that will solve his problem. Geithner stole his pencil anyway. Obama said, "No he really didn't steal your pencil, you only had a contractualy given one that is 1/10th of a pencil. Or is it 1/70th?"

Hi dwot. Thanks again for sharing your thoughts. 


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#3) On April 30, 2010 at 6:36 PM, Imperial1964 (94.49) wrote:

And yet the "generation stuggling with the unstable employment market and high housing costs" also have cable flatscreen TVs and Blackberrys and spare no expense when it comes to their kids' birthdays.

I came from a small, poor, farming community and I still live here despite the ridiculous commute.  Anyway, I remember what little we had when I was a child, no central heating, no A/C, and such, but we always had food and could pay the bills.  The perpetually leaky roof was annoying, but I digress.

Now I see my friends wasting all their money on stuff none of us had or needed growing up and complaining they can't pay the bills and buy groceries.  Most of the "well-off" ones that make as much money as I do are struggling under the weight of mortgage payments on a $250k home and car payments for two brand-new cars.  For most of them, their problem is of their own design.

And it is not like "when I was young" was long ago.  I'm "generation Y".


Good to hear from you again, DWOT.  But I suspect if your favorite topic is debt and defecits we will be hearing from you on occasion for quite some time.

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#4) On May 01, 2010 at 12:53 AM, dwot (29.28) wrote:

Imperial, I can't agree more that lots of people are buying far more then they can afford.  But, I'd have to say that there are lots of goods that are really cheap today compared to say 30 or 40 years ago.  You can buy 37 inch flat screen tv for less today then a 26 inch tv 30 years ago. 

In Vancouver a $250k home is a one bedroom apartment.

The "stuff" is one time money to buy it whereas the mortgage payment is continuing to be crippling.

I am going to buy a flat screen tv this weekend.  The TV I have is about 20 years old now and was about $1000.  That works out to about $50/year, $4 per month, 13-14c per day.

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#5) On January 12, 2011 at 9:12 AM, johnsmiths (< 20) wrote:

Thanks you for searing. This blog is good and i will look forward to it.........................Debt Problems 

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