We’re on the verge of a new great
depression. That much is very clear if you only open your eyes and take a
serious look around. The world is awash in debt. The Canadian federal debt
currently stands at about $622.6 billion Canada Federal Debt Clock Canadian consumer debt was at $1.88 trillion
as of October. The provincial debt of Ontario, where I live, stands at $297.5
billion Ontario's Debt Clock . The American federal debt stands at $19.2 trillion in funded debt and $102.1
trillion in unfunded debt American Debt Clocks .
Most
governments are VERY well aware of the likelihood of a depression. Certainly
the Canadian government is. Both Harper in 2013 and Trudeau in March Trudeau Budget
(page 223) introduced a buy-in provision, which I call the “Stick ‘Em Up” law.
If a bank gets into trouble there is a forced recapitalization paid for by its
depositors. If you have over $100,000 in a troubled bank the bank gets to take
everything over that amount. So if you had $1.5 million on deposit the bank
would take $1.4 million and leave you with just $0.1 million. If you had
$100,000 in a GIC the bank would let you keep the principle, but it would take
the interest.
Another sign
that the Canadian government expects a depression is a statement Bank Of Canada
governor, Stephen S. Poloz, made in November Bank Of Canada Statement He said that if the economy were to get bad he’d try negative interest rates.
He added that he didn’t expect things to get that bad. However you don’t say
that if you really don’t expect things to get bad.
Efforts to create
inflation by pumping money into the economy hasn’t worked and neither has
negative interest rates, which is a sign of desperation. The idea behind
negative interest rates is to encourage more lending, but those who want to
borrow already have. China has poured billions of yuan into infrastructure, but
that hasn’t worked either.
Besides debt,
other reasons for the coming depression are an aging population and living way
beyond our means ecologically and energy wise. If we don’t deal with the
ecological and energy situation VERY soon an even worse economic disaster
awaits.
While Canada
and the rest of the world can’t, at this late stage, avoid a world-wide
depression, there is a way that Canada’s federal, provincial and territorial
governments could avoid going bankrupt. That would be a return to borrowing
from the Bank Of Canada, which is 100% owned by the Government Of Canada,
instead of from private banks. That would save interest as it would in effect
be borrowing from ourselves.
The federal
government used to do this, but quit in the 1970s. After that Canada’s debt
ballooned due to interest payments. From 1974-75 to 2010 Canada paid out over
$1.1 trillion in interest.
According to
an article in the National Post the federal government is spending $25.9 billion this fiscal year on servicing the
debt, while Ontario is spending $11.3 billion. Eliminate this and both governments
would be in surplus and the debt could start being paid down. Such a move might
also save the Canadian dollar and ease the transition back to gold backed
currency.
There is currently a case before the courts trying to force the government to go
back to borrowing from the Bank Of Canada.
Some claim
that borrowing from the Bank Of Canada would cause or increase inflation. There
is no evidence to support this. And if it did now is the very time when we
could use some inflation.
For a good
overview of this, including the court case, see Liberate The Bank Of Canada
Next time
I’ll discuss the Four Sisters of alternative investing.
