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Ontario's interest payments will soon pass what it spends on education
July 13, 2012
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TORONTO, ON, Jul 13, 2012/ Troy Media/ – Wouldn’t it be great if our assets always appreciated, prices at the stores fell, our jobs were secure and real pay raises were coming our way?
Here’s a closer look at the years ahead. Asset prices will be stagnant for the most part, and more likely to fall than rise. Some prices will go down, but don’t expect to see that at the grocery store, or at the gas pumps; very often: those are headed up. Other countries are going to mostly be worse off than we Canadians will be, but that won’t help our export-led economy, and our public sectors are going to shrink like it or not. As for pay raises, don’t hold your breath: they’re going to be few and far between. More likely, you’ll be asked to take reduced hours at least once in the next few years.
That’s a pretty grim picture. The good news is, if you treat it seriously, you’ll probably do better than okay. Only if you keep thinking ‘it’s going to get better any day now’ are you likely to end up getting hurt.
Japan is one place that’s been living like this for more than two decades now. Since 1990, Japan’s economy has been helped by exports, but it’s been a long grind for other parts of its economy. (The Nikkei average for Japanese stocks is 1/4 of what it was back then, and Japan’s had 0 per cent interest rates for so long now that savings actually cost money, thanks to taxation.) The housing market slipped and fell and has never recovered.
We’re better off than that – but closer to it than it looks. Yet the average Japanese thinks the last two years haven’t been altogether bad. They’ve paid down debt, retiring as much paying of interest as they could (that paid better than investing). They’ve moved upmarket, buying quality goods when they needed to buy – or waiting a year to get a better product at a better price. They spend more on transportation and food than before, but otherwise they’ve handled the stagnation well.
These are lessons Canadians need to learn, because the rest of the world is determined that the planet will stagnate.
In this country, we’ve got some pretty profligate governments. They’ve racked up debts to the point where interest payments are a real problem: Ontario’s annual payments exceed everything other than health and education spending, and are about to pass education. Wrestling the budgets down isn’t an option: it’s becoming mandatory.
A global credit crunch will send interest rates up as everyone backs off funding governments without getting a good premium for it. So the broader public sector, both federally and provincially, is going to be cut back, which, in turn, slows the economy.
Meanwhile, when you see high flying countries like China, India, Russia and Brazil (to pick the four biggest) shrinking their growth estimates dramatically, and retrenching their spending, you know that we’re going to see that hit our exports – and Canada, like Japan, is an exporting nation. That puts the crunch on the private sector: less overtime, fewer shifts, maybe even some closures.
Our companies have been rapidly trying to shed their debt since 2008. Many of the rest of us as individuals and families have piled it on, instead. New bigger mortgages, new lines of credit, more on the old credit cards.
As American financial commentator Karl Denninger notes in the opening credits to his weekly podcast, ‘The Market Ticker’, it’s a deflationary period. The value of money is going up; debt gets more expensive to service. All this before higher interest rates hit our family balance sheets, too.
Food and energy are the great exceptions to this. Food for us is mostly energy anyway: hydrocarbons get cracked to make fertilizers, fuels for farm equipment keep irrigation pumps running and keep the processing and distribution systems humming. As for energy, we may still be finding lots of it, but what we’re finding is the expensive stuff: lots of capital to extract it, lots more to process it.
Give us $20 per barrel (bbl) oil for five years and the economy will boom, but we’re not going to have a lot of $20/bbl ever again. That’s why we’re having so much trouble getting things firing on all cylinders again.
Get smart about your future. The years ahead can’t, and won’t, be fixed by government action. This time, it’s up to you.
Troy Media columnist Bruce A Stewart is a Toronto-based management consultant. You can reach him at http://about.me/bastewart.
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