As I Look At Money: Debt and Deficit

We folks here in Canada just had our Federal Budget announced, and from what I can see, reaction seems very mixed. When I talked to people around me about it, no one really has a sense of just what is going on with respect to what this budget means, and where Canada is headed. Sure, we all know that we are in global economic downturn, recession, or catastrophe, depending on who you listen to, but almost everyone that I know says sort of the same thing: “things are tough all over.” But how tough is it?

Stairs  - Blender Render small

Most people do not know what it means when government talks about a balanced budget versus a budget deficit, and how that correlates into the country’s total national debt. I know, I sense eyes getting glossed over, but once you have the terminology set, then it all falls into place. But first, the shock and awe of where Canada sits as far as the overall debt goes. We are currently (as of the time of writing this blog post) sitting at a total national debt of (drum roll) $608, 724, 800, 000.00, which translates into each of us on the hook for just $17, 400.00 each (Taxpayer.com, March 2013). This is peanuts compared to the United State, but remember that Canada has a much smaller population, so keep this in mind about the proportions between the two countries when reading about their total national debt. In this light, Canada is doing a super job on money matters, but are we really doing it right as we look towards the future?

Terminology

I really like this quote that I found from the TPC Financial Group online, that really sums it up about what is the difference between debt and deficit. “Put simply, the national debt is the accumulated total of all previous budget deficits plus money borrowed intragovernmentally (this would include things like surplus money paid into social security which the government took and spent)” (march 2013). For example, this current budget from the Federal Government says that the total fiscal budget deficit (just this last period, or last 12 months) is over $30 billion (CBC News: March 2013). So this money will get added to the total overall debt.

Spin

Spin is when a group, or someone, says something about a negative situation, or consequence, and changes the meaning to reflect a more positive light, usually in their favour. We call this semantics, or playing with words, usually to cover the full impact of the situation. What I observed when the Federal Government announced that it had a $30 billion dollar fiscal deficit this term, and that by 2015 it will achieve a balanced budget by then, this seems to make people around me feel good when they heard that (CBC News: March 2013). The Government is not lying, but at the same time, they are not telling the whole truth either. I believe that all governments do this, and the media seems to play alone with it too, as I am sure everyone assumes that everyone is on the same page in terms of understanding this whole concept. So, I see a sense of false hope when people that I know around me hear the news from government announcements like this.

Conclusion

What does this means to each of us?

Having such as large debt hinders the ability of the government to function with the burden of paying off the capital and interest to the debt while trying to run the country. You either have to crank up taxes to make everything work while paying down the debt, or cut programs to service the debt, either way, this means huge limitations and effectiveness of government and to how the country runs overall. If you ignore the debt, then the value of investment and further borrowing of money  from the Central Bank comes into jeopardy which could effect trade, value of the currency, and funding programs into the future. The hope is that the country will eventually grow faster than the debt, thus making for more room to pay off the debt as growth expands, but that is like betting at the horse races. People need to understand what this this means for all of us, and for the future generations who will have to deal with the debt that we are passing onto them.

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