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. 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.

  5. 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.

  6. 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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