How Does this Make Sense?

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

This article may or may not interest our American readers, as it deals with our Canadian government systems and their debts.

I get really angry sometimes at our various forms of government.  In the fall, I wrote a letter to my local city councilor – asking how the city could be building large capital projects (city funded) while running consecutive deficit budgets (I still haven’t received a reply).  I don’t really understand how our elected officials have decided that the best use of taxpayer money is building an ice rink in front of city hall when they are in this type of financial situation – this would be like my wife trying to tell me that it would be a really good idea to buy a second car after we found out I was being laid off.

Then, you look at our National Debt – which is now growing exponentially.  My tax dollars are going to pay for interest on deficits that our governments (at various levels) have continued to rack up year after year.  If I was to ask the departments of finance why they think this is a good idea, I’m sure I would get a response back that they have “no choice” – revenues are not coming in to support the necessary expenses in this down economy.

The problem I see, which is very similar to what a lot of households is that there is always going to be seemingly “necessary” expenses that are going to come up.  As an individual, if I continuously racked up deficit after deficit, eventually someone (a bank or other creditor) is going to put a stop to my feverish spending.  In the current climate, nobody is really telling the government to stop racking up the debt (well maybe other than me), something I don’t really understand.

I think that, much like an individual who is not willing to change their lifestyle to reflect their finances, our government is paying for stuff that we as a country can’t afford.  There is really no incentive for the Government to cut spending, as the next party who wants to get elected is going to give back what was cut (and probably more).  In Ontario this February, there was a massive report released stating exactly what the government needed to do to “right” the economic boat.  The report basically boiled down to what I would tell any individual who was having money problems…stop spending and pay off your debt (It was promptly ignored).

I’m not sure what the solution to our country’s problems are.  What I do know is that we’ve tried throwing money at it, and that doesn’t seem to be making life any easier – perhaps we should try something else?  All I know is I am attempting to get out of debt as quickly as possible, with the incentive being that I will gain some additional control over my finances.  I don’t know why our government doesn’t see it the same way.

So, that’s my rant.  I realize that Canada has done alright in comparison to other countries, I would like them to do better though and to fix the financial problems that they don’t seem overly concerned with.  Perhaps my argument is oversimplified – do you agree with our government’s current deficit spending?  Would you do the same thing with your personal finances?

8 thoughts on “How Does this Make Sense?”

  1. I totally agree that all levels of our government have spending problems, but it’s way more complicated than personal finances; it’s like having 100 wives, each has a different type of spending problem, how would you please most, if not all, of your wives while trying to control their spending habit?

    The only thing I can think of is to write more to our councillors, MP, MPP and voice out our concern, but just remember, we are most probably, directly or indirectly, one of their trouble-causing wives!! 🙂

  2. I think you’re off base, but am glad that you avoided the ‘national credit card’ trope that is frequently invoked. Infrastructure spending bears a closer relationship to education costs for a household than general spending (an investment in the future, that improves both the potential for economic output and quality of life).

    It’s appropriate for the government to maintain a certain level of social services when times are bad, and to plan for the future, employ workers, and take advantage of relatively lower prices on infrastructure. The question is what happens when the economy starts to turn around. Do we actually run surpluses, or does ‘the taxes are too damn high’ become the argument of the day?

  3. Good discussions! Like Retiredat44, I believe it’s a complicated problem but what does bother me are the obvious inefficiencies in government that piddle away money. Private business would have removed these internal money-pits long ago.

  4. Study monetary policy, not just fiscal policy (as you reference, even if only via inference, in the above post).

    Maybe we should start actually ‘owning’ our very own debt? Why do we farm out our credit making facilities to privately owned banks instead of the Bank of Canada? This inherently creates an economy based on debt vs one based on productivity. We will NEVER pay of our debt, because as soon as we do we will no longer have money circulating within the economy. Our ‘cash’ is created based on a fractional reserve system, but CANADIAN banks only hold $4Billion in reserve for $1.5Trillion on loan to the public, that’s a multiplies of 375 times, it’s supposed to be 7 times multiplies.. Did you know that 90% of our Canadian debt is accrued compounded interest? We pay $160M per day in interest payments to privately held banks. We could be paying that to ourselves instead. Where do banks get this money from, that they lend to the government? They create it out of thin air.. it’s a line item on an accounting ledger, that’s all it is. Read Web of Debt, it shows you our incredibly slippery slope. It uses the US Fed as it’s example, but Canada’s financial system is setup in exactly the same way.

  5. @ Retiredat44 – I agree it’s a complicated problem, but it seems like there would be mass chaos if a politician stood up and said “we can’t afford all of this stuff, the current way of doing things is unsustainable and there are going to be significant cuts to services you have previously enjoyed unless we crank up your taxes even higher than they already are”

    I guess, I would prefer less government involvement in my life compared to more and don’t see a problem with reducing services – I feel that I’m in the minority though.

    @ Arrow – I can see investing in infrastructure leading to future gains. What I don’t understand are the myriad of programs and spending that our government decided to implement in the wake of running huge deficits. With unions and other “fixed” costs, I don’t think infrastructure is much cheaper in down years than up years.

    I don’t think the government has plans to ever repay the debt. They plan for the short-term and let the next party deal with the long-term.

    @ Funkright – But if we owned our debt, where would all of my dividends come from on retirement? I would agree that owning our own debt would make a lot of sense. Thanks for the book recommendation.

    The whole thing is ridiculous to me – I just got a letter in the mail from my MPP and she’s really happy that Ontario will no longer be running a deficit by 2017…..Seems like we really have our “stuff” together, running deficits for almost a decade straight.

  6. Dave, I am totally with you. I don’t mind cutting services either. At the same time, though, I don’t mind paying a little more (tax) to help out those needed and to build a safe, healthy and harmonious society (I am socialist in that sense:-)). The sad thing is we rely so much on our government to redistribute wealth in a fair and sensible way, but our government is obviously not doing its job very well.

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