My Own Advisor recently wrote about the heavy austerity in Greece, and thanks his lucky stars that things are nowhere near this bad in Canada. I agree that those in Canada are very lucky that the country has weathered the financial storm in relatively good shape, and not only that but the Canadian government has wasted less of the people’s wealth on “stimulus”.
Unfortunately, there was some populist waste, but it certainly could have been worse. The country has not built entire ghost cities under central direction, nor are they doing stupidities such as scrapping perfectly good used cars in order to stimulate the car industry (yes, there are programs, but not on the same scale). On those levels, Canada is not doing too badly at all.
On the other hand, there are storms on the horizon. The centralized medicare program is doing a poor job of providing decent health care to the masses. It takes months to get an elective operation that may be necessary for quality of life, doctors rush you through and care more about throughput, and it can take a year or more to get a MRI or another diagnostic test done.
The alternative is for Canadians to pay for these procedures out of pocket. Private solutions for MRIs and private specialists exist, while paying for an elective procedure might cost a fortune. There is a double burden of having to pay taxes to support the public system while paying for private costs out of pocket.
Unfortunately, these costs are still growing much more rapidly than economic growth. This is a storm brewing on the horizon that threatens to cause further disruptions in the future.
Another point of worry is the increasing provincial and personal debt. Quebec‘s total public debt burden is near Greek levels and lies at close to 120%, while Ontario’s fiscal situation is not much better with a debt burden near 90%. These provinces have now joined the “have-not” group of Canada’s equalization program, which was originally developed to promote economic equality, but has unfortunately ended up sponsoring provincial profligacy.
The western provinces, such as British Columbia, Alberta, and Saskatchewan, are in much better shape, but this imbalance is being taken advantage of by the two big eastern provinces of Quebec and Ontario, which threatens Canada’s unity and sense of fairness between east & west.
Personal debt levels are also nearing dangerous levels. According to The Globe and Mail,
“The debt burden of Canadian households has surpassed levels of both the United States and the United Kingdom and, by at least one measure, they are hurtling toward those countries’ peak levels of 2007, new Statistics Canada data show.”
Housing prices in major cities in Canada (such as Toronto, Montreal, and most notably Vancouver) are at sky-high levels, yet Canadian salaries, after tax, are what they are. At least in places like San Francisco, the high salaries help to compensate. According to the Bank of Canada,
“With this renewed vigour building on the decade-long boom that preceded the crisis, the average level of house prices nationally now stands at nearly four-and-a-half times average household disposable income. This compares with an average ratio of three-and- a-half over the past quarter-century…”
…
“As in many other countries, cheap credit has been used to bid up the price of Canadian houses, a non-tradable good, rather than invest in expanding the productive capacity and export competitiveness of our businesses. For example, over the past decade, housing debt grew by more than 150 per cent, while business borrowing rose by only 40 per cent. As a result, the stock of housing-related debt went from less than business debt to almost two-thirds more. “
This is definitely something to be worried about. While Canadians have been relatively well-insulated from the global shocks so far, it is the time to be prudent and work at reducing debt and improving opportunities; it is too soon to pop out the champagne just yet.
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Thanks for the mention.
I think you hit the nail on the head here, because it is not only personal debt that should be a concern, but government debt as well.
“Another point of worry is the increasing provincial and personal debt. Quebec‘s total public debt burden is near Greek levels and lies at close to 120%, while Ontario’s fiscal situation is not much better with a debt burden near 90%. These provinces have now joined the “have-not” group of Canada’s equalization program..”
If we, provinces, governments don’t watch it – we’ll soon be in a mess as well.
Nice post.
I hope the provinces are not relying on the federal government to bail them out! That would create a real mess, and a political firestorm as well.
The short answer to your question is no. I think Canada did better this time because of how badly we did in financial problems in the 1990’s.
I find our debt problems very worrisome. It is interesting that, even though conservative parties talk about being financially responsible, they are not always. Our finances were fixed by Chretien a liberal. When New
Zealand got into financial trouble in the late 1970’s it was the labor party that fixed the economy.
I did not like Chretien as a prime minister, but I think that history will treat him kindly. (On the other hand, Trudeau may not be treated as well by history.) Who knows yet about Harper as a prime minister?
I also agree that health care is a problem. We all want gold plated health care, but we do not want to pay for it and in fact, we cannot.
With Greece, you would think that something could have been done about Greece’s problems without totally screwing up the economy. There is so much about how economies work that they do not seem to understand or perhaps do not want to understand.
Yeah I have noticed that too! In fact, I really don’t like that about conservative parties because they end up slandering free markets and capitalism and make people think that those are right-wing ideas with bad consequences. We should judge these leaders and parties by their actions, and not simply by their rhetoric. A conservative party that vastly expands the size and scope of government, or one that grants special privileges to big businesses for that matter, is most certainly not for free markets and liberalism, whatever their words may say.
There are tough times in Greece, and I don’t know if defaulting and going off the Euro would be better or worse for them overall.
I’ve read that Canada’s banks were (and are) much more risk-averse. you know, things like actually checking if someone has the income they claim on the application. Just kidding; but they use tighter ratios and force the banks under-writing loans to actually hold some portion (or majority) of the loans themselves. Novel concept – accountability! But that doesn’t mean the housing market isn’t overheated. There are many areas I’ve been reading about that seem ripe for a crash, underwriting or not. Bubbles can still form regardless of regulation – it’s a free market after all and people can big up properties as much as they like. So, they may not be totally immune, especially in the larger cities.
That is true, the lending is not QUITE so extreme as it probably was down south. Nonetheless you should have seen what the bank was willing to lend us!
The government has been cutting back on amortization and maximum debt ratios, which does take out a bit of steam.
About 2 years ago I visited some people I know very well, who live outside Toronto. They told me about how housing prices keep going up and up, with no end seemingly in sight. Also, I heard about a couple they knew living nearby that had really stretched to be able to afford a home.
It really seemed eerily like the atmosphere here at home in the US in the early 2000s, where people were seeing property values soar in many metropolitan areas, with no end in sight for the average person. As we know, that totally ended and prices plummeted in many areas.
Prices are even higher today, so just imagine that. We’re in for either a stagnation or a crash, but certainly not another doubling of prices relative to income.
Although The united states finances are in deplorable shape canda does much of their business with the united states so I don’t think canda is immune from a blowup.
Nobody is immune. If something happen in the USA, the whole world will collapse.
It could lead to a better financial order down the road, though.