Thursday, August 12, 2010

For everything there is a season and a time for everything under heaven.

There are times to balance the books, and there are times to borrow.
If borrowing needs be done, it is best that governments borrow. If an unemployed family has to borrow, the local "Lending Tree" wants 30%. Families in crisis do not borrow to buy a new car, they borrow to eat, buy a few clothes at the 2nd hand shop and do what ever they can to scrape by.

Most Canadians aren't in that place. It was appropriate for the government to borrow. Canada's economy has been lock-step with the States for probably 75 years--until now. Usually we lag behind about a year. Not this time, were that the case, Canadian housing prices could have collapsed to the 50% range enjoyed by Southern California for example.

Consider what would happen to Canadian wealth if that much equity were wiped out... It makes 50 billion in borrowing a bargain. Its the right time to borrow in situations like this. With interest rates below 1%, the pain of debt on the heads of Canadians is far less than the alternatives.

Canada's debt is about 25k/capita. In the US its almost 50k. If the Canadian government stimulus was in equal proportion to the US, the Canadian deficit would be between 130 billion and 200 billion this year. Comparably speaking the government here is far more conservative. I am worried it might be too much so.

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