Fireworks and Fiscal Ruin

This past Sat­ur­day we enjoyed the sec­ond night of the Fire­works com­pe­ti­tion from yet a new van­tage point, my friend and fel­low blog­ger MJ’s con­do in Yale­town. With our view from the 30th floor, it had to be the high­est ele­va­tion from which we’ve ever seen the show. (Pam and I have been lucky enough to have seen it from 4 dif­fer­ent loca­tions over the last 3 years). This year was marked by plen­ty of talk and munchies, as well as Tanya (NetChick) and I both try­ing to snap pic­tures of the plumes with our iPhones. Best of all, we man­aged to post them on Face­Book just about as fast as we snapped them. Nerd paradise.

The fire­works this evening of the com­pe­ti­tion the USA’s entry (last Wednes­day had been Canada’s). Nor­mal­ly, the phrase ‘Amer­i­cans shoot­ing rock­ets over Van­cou­ver’s Eng­lish Bay’ is not what any­one here wants to hear, but in this case, I guess it was OK.

Were We Rats Fleeing a Sinking Ship?

While we’ve been observ­ing the third anniver­sary of hav­ing moved here, at the par­ty, appro­pri­ate­ly enough, I got to speak to an Amer­i­can cou­ple who had just made the move here. In fact, they had just arrived a week or so ago, rough­ly in the same state of con­fu­sion and excite­ment as we had in 2005 (MJ is help­ing them to find a per­ma­nent place to live). The main dif­fer­ences between them and us is that they are mov­ing from San Fran­cis­co (vs. our Boston), and our tim­ing was, we all agreed, a lot bet­ter. In the last 3 years, the US Real Estate mar­ket, the US Stock Mar­ket and the US Dol­lar have all fall­en marked­ly in val­ue, leav­ing Pam and me in much bet­ter shape than the cou­ple who unfor­tu­nate­ly did­n’t have the nerve to move ear­li­er. They even had a place picked out, and just did­n’t move on it.

As we com­pared notes, the top­ic of why we left came up. While it was true that in 2005, we could­n’t stand the direc­tion the coun­try was going (and note that we felt that way before the Tor­ture, Ille­gal Wire­tap­ping and oth­er scan­dals became pub­lic knowl­edge). Despite all that roman­tic stuff about vot­ing with your feet,  the most con­crete dis­as­ter that loomed on the hori­zon for us was the US Pub­lic Debt. Dur­ing the Clin­ton era (our 8‑year night­mare of peace and pros­per­i­ty), the US Gov­ern­ment actu­al­ly ran a bud­get sur­plus, eras­ing the deficits cre­at­ed by the Reagan/Bush I years, open­ing up the pos­si­bil­i­ty of pay­ing down the Nation­al Debt. Then along came WPIUSH, and an all-too-brief peri­od of fis­cal respon­si­bil­i­ty was quick­ly reversed. So, the real rea­son that we decid­ed to leave the US was that we were con­cerned that the coun­try was going down the drain fiscally.

Yes, it’s easy to see where most of it went (the war in Iraq, for one thing, along with the tax cuts for the top 2% rich­est Amer­i­cans, as well as a mul­ti­tude of fund­ing and over­sight deba­cles, some that have yet to see the light of day). Today, the sit­u­a­tion isn’t get­ting any bet­ter. In fact, it’s get­ting even worse now than it was 14 years ago, when the Fed­er­al Deficit (and Debt) first appeared on our radar, accord­ing to Reuters:

WASHINGTON (Reuters) — The Bush admin­is­tra­tion on Mon­day pro­ject­ed the U.S. bud­get deficit will soar to a record of near­ly half a tril­lion dol­lars in fis­cal 2009 as a hous­ing-led eco­nom­ic slow­down cuts into gov­ern­ment revenues.

The eco­nom­ic and fis­cal dete­ri­o­ra­tion will com­pli­cate efforts to bring the bud­get to bal­ance and pose chal­lenges for who­ev­er takes over the White House in Jan­u­ary, either Repub­li­can Sen. John McCain or Demo­c­ra­t­ic Sen. Barack Oba­ma.

“I believe who­ev­er becomes the next pres­i­dent will have a very, very sober­ing first week in office,” pre­dict­ed Sen­ate Bud­get Com­mit­tee Chair­man Kent Con­rad, a North Dako­ta Democrat.

React­ing to the White House­’s new pre­dic­tion that the bud­get deficit will hit $482 bil­lion in the fis­cal year that starts Octo­ber 1, Con­rad said that num­ber eas­i­ly could rise by an addi­tion­al $80 bil­lion when the full costs of the Iraq war are tal­lied next year.

The econ­o­my has been hob­bled by the hous­ing mar­ket col­lapse and soar­ing food and ener­gy prices. In Feb­ru­ary, the Demo­c­ra­t­ic-con­trolled Con­gress and Pres­i­dent George W. Bush approved a $168 bil­lion, two-year stim­u­lus plan to ward off recession.

With the slow­ing econ­o­my and the cost of the eco­nom­ic stim­u­lus plan, the White House said it thinks the deficit will hit a record $482 bil­lion in fis­cal 2009. How­ev­er, it cut its fore­cast for the cur­rent fis­cal year to $389 billion.

Even if we ignore where the mon­ey went or is even going now, the prob­lem (the Debt) is still out there, like a tick­ing time bomb. Just as there were fore­clo­sures on bad mort­gage loans through­out the US, there will come a day when some­one has to come up with a way of pay­ing that debt. When will that day come? I’m not sure, but I can pret­ty much count on it being with­in the next 20 years, and the fur­ther out the US Gov­ern­ment can push it out, the bet­ter for who­ev­er is in pow­er. Whether the Pres­i­dent in that era is Barack Oba­ma, Chelsea Clin­ton or per­haps one of the Bush Twins, there will come a day when the US Debt reach­es some sort of a break­ing point. What effect this will have is also hard to guess, but I can’t imag­ine a sce­nario where it will be a good thing. More than like­ly, the qual­i­ty of life in the US will suf­fer, as it has suf­fered dur­ing the past eight years. Peo­ple will work hard­er with less time for them­selves for less pay, and under poor­er work­ing con­di­tions. Decent Med­ical care will be hard­er to get and also be more expen­sive (again), Aver­age Life Expectan­cy will get short­er (again), and dai­ly life in gen­er­al will get more bru­tal, vio­lent, unfair and unpleas­ant, par­tic­u­lar­ly if you are not very rich. There’s a good pos­si­bil­i­ty that this event (call it a crash, a cor­rec­tion, a default, or what­ev­er you like) will come at a time when Pam and I might wish to be retired and liv­ing on a fixed income, per­haps includ­ing some sort of a Gov­ern­ment Pen­sion. You can bet that those will get hit. Rather than end up poor and liv­ing in a coun­try fil­ing for bank­rupt­cy (or some­thing worse), we opt­ed for a coun­try that looked to be more sol­vent in the com­ing 20 years, at least.

So, once again, if this lat­est news (which came as lit­tle sur­prise) my instincts about where we went, and when we went have remained on track. I hope my good sense (and per­haps luck) holds. After all, part of ‘good for­tune’ is being in the right place at the right time

8 Replies to “Fireworks and Fiscal Ruin”

  1. Excel­lent post, and right on tar­get, David!

    Sure wish my David and I had act­ed quick­er on the US to Cana­da move — the finan­cial sit­u­a­tion would have been much bet­ter. The good thing is we bought a small place here — wish we had sprung for a larg­er unit! The bad thing is there is no way in hell we’ll be unload­ing our Flori­da prop­er­ties any­time soon.

    I’m going to link to your post on Moved to Van­cou­ver, if you don’t mind.

    You’re right: being in the right place at the right time is def­i­nite­ly a part of “good fortune”.

    Glad we’re all here now .…

  2. The best mea­sure of the repaya­bil­i­ty of a coun­try’s debt is its debt-to-GDP ratio.

    Canada’s debt is 32% of its GDP, down from a high of over 60% around 1996.

    The US in 2007 car­ried 37%, down from a high of 49% in 1994.

    The US had and has the bonus of valu­ing its debt almost entire­ly in its own currency.

    It’s good that the Cana­di­an debt/GDP ratio is drop­ping, and it’s bad that the US ratio is ris­ing, but if one describes the present US debt sit­u­a­tion as “as bad as Cana­da was in 2003” it should add some perspective.

  3. Raul — I’ll be there…
    Bob — Link Away… 🙂

    Good point, Ryan. The ratio of debt to GDP is a good indi­ca­tor of a coun­try’s fis­cal ‘health’. It’s a lit­tle dis­qui­et­ing that Canada’s debt/GDP was so high as recent­ly as 5 years ago. I can only hope that the coun­try con­tin­ues to live with­in its means, which may become more dif­fi­cult as prices go up world-wide (but a stronger dol­lar does help there).

  4. I had to take one last kick at this can.

    Debt to GDP in the EU by coun­try. They’re all over the place. Low­lights: Ger­many, 65%; France, 64%; Italy, 104%; my beloved Greece: 95%.

    OTOH, Ire­land at 25%, Den­mark at 26%, and numer­ous small coun­tries in the 0–20% range, with Esto­nia lead­ing the pack at 3.4%.

  5. As a com­menter points out on the page link­ing to ‘The Bolt’, there’s prob­a­bly some num­ber at which it’s OK to have some debt:

    …the opti­mum amount of debt is not zero. There are two rea­sons the gov­ern­ment needs debt. First­ly, and most impor­tant­ly, the gov­ern­ment debt can be used to lever­age GDP growth pro­vid­ed it’s invest­ed in gov­ern­ment spend­ing that con­tributes to future GDP. For exam­ple, bor­row­ing a sum of mon­ey to invest in resource exploita­tion, or bet­ter voca­tion­al train­ing for the cit­i­zen­ry increas­es future GDP. Sec­ond­ly, the finan­cial ser­vices indus­try, espe­cial­ly defined ben­e­fit pen­sion plans and bank­ing insti­tu­tions depend on zero-risk gov­ern­ment bonds to remove risk from their port­fo­lios and they depend on gov­ern­ment trea­sure bills for short term liq­uid­i­ty. The advan­tage to the nation­al finan­cial sys­tem out­weighs the nation­al cost of debt service.

    Giv­en the choice between pay­ing down the debt faster (say, with­in the next 15–20 years) or…investing in an infra­struc­ture that will help Cana­da deal with the even­tu­al move away from an oil-based econ­o­my (whether by choice or due to fur­ther shortages/environmental dam­ages), I’d be in favour of putting some of it toward encour­ag­ing fur­ther progress on that front.
    I won­der how Eston­ian finances are these days? They’re the newest mem­ber of the EU, and per­haps their bud­get­ing is still influ­enced by Sovi­et-style man­age­ment. Inter­est­ing that Ger­many and France are so high — I nev­er would have guessed it, giv­en their stan­dard of living.

    As with all met­rics, debt/GDP can’t be tak­en in a vac­u­um, and the direc­tion that num­ber is going is also extreme­ly important.

    I won­der if there is a group that looks at the ‘health’ of coun­tries based on a vari­ety of fac­tors (afore­men­tioned debt/GDP, Qual­i­ty of Life index, Nat­ur­al Resources, Lev­el of Cor­rup­tion, etc.) to come up with an over­all rat­ing (like a Bond rat­ing). I’ve nev­er heard of one, and the Econ­o­mist list­ings we used to get rarely go much deep­er than one or two of those factors.

  6. I found your post through the link at Moved to Van­cou­ver and find it inter­est­ing. My part­ner and I made the move last fall, after a 27 month wait for pro­cess­ing of immi­gra­tion info, and are not look­ing back. I too wish we had start­ed ear­li­er but we were lucky to sell our home in WI, at a dis­count, and drove west to Van­cou­ver Island to start in a new won­der­ful coun­try that actu­al­ly appre­ci­ates us. I always find it inter­est­ing to read of oth­ers who made the move and their rea­sons for doing so. I’ll be book­mark­ing your blog for week­ly reading.

  7. Wel­come to BC, Dou­glas (or Doug, if you pre­fer). I must admit that I prob­a­bly post a lot less about our move here and the dif­fer­ences between the States and Cana­da, as we now call this place home and feel that way about it. Still, every now and again I’ll see some­thing that reminds me of how great a divide there real­ly is between us and the coun­try to the south and will write about it. If you want to see some stuff that might be more per­ti­nent to your sit­u­a­tion, you can check some old­er posts from say, late 2005 and 2006.

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