Less Red than the others

February 02, 2013

Barclay’s Bank has published a table that shows the fiscal balance situation facing western nations. It’s all red (ie. bad). Canada is less red that the others.

• Canada has been reducing its federal deficits over the past three years and is on track to balance its books in time for the next federal election in 2015-16. Large provincial deficits continue in Ontario, Quebec, Alberta and BC.
• The US has shown zero willingness to tackle its large $1.3 T/year federal deficit. The US Federal Reserve is the great enabler of federal profligacy, with endless rounds of QE. On the positive side the moribund US housing sector has shown signs of growth.
• Europe’s economy is sick. Demand is low and unemployment very high. The expensive social safety net is financed through borrowing and reliance on the German and northern European output.
• Japan’s new government seeks to spur growth by higher inflation and a weakened Yen. The ongoing dispute with China regarding some disputed islands adds uncertainty to the mix.

Commentary

Generally the northernmost areas in North America have not felt the downturn affecting much of the western world. Western governments have chosen to rely on the power of the central bank printing press to pursue accommodating (loose) monetary policies. The governmental budgets in the north have not, as yet, seen significant reductions in their core funding. Perhaps the hardest hit has been in federal services cuts for Parks Canada services in Yukon, and NWT.

Alas, the magic of the central bank money-printing has its limits. At some stage the Fed balance sheet must stop growing and start shrinking. Interest rates must then rise, and the price must be paid for the easy money. In other words the younger generation must pay for society living beyond its means today.

Sources

• a)http://www.zerohedge.com/news/2013-02-01/state-world-macro-glance