jeudi 9 juillet 2020

Stratospheric debt

Have you seen the news?

Canadian deficit in 2020: 343 billion dollars (before the crisis, the government expected a deficit of 28 billion dollars);

Canadian debt in 2010: 524  billion dollars;
Canadian debt in 2015: 629 billion dollars;
Canadian debt in 2020 (expected): 1,2 trillion dollars.

Western countries (Europe and USA) are probably going the same way as Canada. In other words, governements won't be able to give candies to citizens for a long time. Actually, they'll probably have to cut some parts of their mission to concentrate on specific topics (healthcare and education... well, our almost free canadian education could become a little more expensive).

When I look at the market, I remember the PIGS. Do you remember the PIGS? About 10 years ago, the market went into a crisis because of  Portugal, Italy, Greece and Spain. Their debt seemed out of control. And many people worried about them all around the world.

Frankly, what's the fucking impact of Greece and Spain among the world? What's their impact in Europe? France and Germany are probably responsible of 33% or even 50% of the economic force of Europe (excluding UK).

Now, almost every country is affected. Canada, United States, France, Germany, UK, and many others will carry a huge debt for many, many years. And the tourism industry is fucked for a while. Restaurants and bars will have to respect some heavy restrictions  (no dancefloor, only 50% of capacity, closing time at midnight instead of 2 or 3 AM). So, many restaurants, hotels and bars will continue to go bankrupt. And tourists will stay home. There are a few like me who will go back to another country as soon as possible, but the majority will carry a trauma for a while.

So, now, the situation of the PIGS has exploded into a CUNT (Canada, United States, Nederlands, Thailand), a DICK (Denmark, Italy, Chile, Kenya) and a FUCK (France, United Kingdom, China, Koweit).

We'll surely face a lot of austerity in the coming years. Way less public investments in many fields. because governements will have to make choices.

On my last post, I wrote that every situation brings some occasions. Well, with this world full of debt, what would be the occasions that we don't see yet?

Please, share your vision in the comment section. If that fucking pandemic is hurting our economy and makes us poorer as a society, can't we at least become richer on an individual level?

9 commentaires:

  1. Hold on here.
    For Canada, the debt / GDP ratio is 50%. this ratio was at 30% before the pandemic and was it 66% in the mid's. The debt / GDP ratio is still one of the lowest in the developed country. And most of this debt was "borrowed" from the bank of Canada through quantitative easing, in other word, printed money.

    Still, the government took the slack from a good balance sheet, but we can't afford to print more money

  2. Driveshoe, that's the garbage the government wants you to believe. We actually have a much worse debt situation because other G7 countries do not borrow at the sub-national level. So to get the real borrowing/paying capacity, you need to add national + provincial + household debt, and then Canada has the second worst debt situation in the G7 ( Of course if you add the unfunded liabilities in the U.S. (well over 80 trillion), then the U.S wins.

    There's no way this ends well. With an ageing population (and requirements for massive health investments) and significant advances in automation (creating forms of structural employment) within the next decade, the economic headwinds will be too strong, and our debt load will be a permanent drag. We dodged a lot of bullets since we closed the gold window in 1971 and started devaluing money. But we are not going to dodge this one.

  3. Whatever I wrote in this post, we should not forget that it's not over.

  4. Timely -

    The question is, how will the market behave in a low-growth environment. With the current euphoria during the most severe pandemic of the last 100 years, clearly there is no way to tell. But excess debt will have to be cleared one way or another. I think all countries are looking at Japan and realizing how much of a drag on spending excess debt has been in the last 20 years. Central bankers will try to avoid that scenario, but outside of blowing more bubbles and increasing systemic risk, I have no idea what they can do.

  5. Asset light stocks are going to go thru the roof.

  6. Get some exposure to gold and Bitcoin.

  7. It's okay as long as every other country is doing just as badly?

  8. Well some countries arrived in this crisis with much less debt than others, so they had more fiscal room. Even within Canada there are striking differences, with Ontario, Quebec and the Atlantic provinces in deep trouble, while B.C. is relatively safe. Also not all countries share the same demographic profile (aging pop.), with the associated health expenses. But "everyone is deep in debt" is the current rationale used by indebted governments to calm down fears over the terrible fiscal situations. It's a huge gamble. I don't know how the fact that similar countries are equally in trouble helps my government find new money to pay for coming expenses.

  9. I don't think that relativity is helpful when it comes to debt. The only "positive" thing is that some countries will be much more in trouble than us... who will be only in "trouble".