Spending Us Over the Brink

Canadians have been lulled into the believing that the traditional conservatism of our chartered banks has insulated us from the economic chaos that has infected the U.S. and major parts of Europe.   Fundamentally, overextended national accounts on both continents have clouded the futures of Greece, Italy and Spain.  Their position threatens the global picture.

While it's true that Canada weathered the 2008 collapse in the U.S., our own credit culture is weaker than many imagine.  Now Statistics Canada is reporting that the ratio of household debt to income is nearing an astonishing 150 per cent.  Of course this might come as a surprise to consumers of  Statscan reports.  But it won't shock the thousands of middle-class Canadian families who are struggling to keep up with the payments on their credit accounts.

Much of that credit was accumulated while Canadians were surfing the wake of a healthy U.S. economy, fed in part by exports from America's biggest trading partner.  Now the U.S. is digging in its heels with Obama's new jobs program that could stifle cross-border trade and tip our economy in the direction of our neighbour's.

Until now Canadians have shown little sign that they are ready to enter into a dialogue about how to rebalance our accounts to restore our individual and collective fiscal sovereignty.  As long as we are willing to ride along on America's coat tails, we can expect similar results.  Mimicking their credit-driven consumer culture is going to catch up with us sooner or later.  At the rate it's happening, we're almost there.                    

Passing the Buck

A friend who saw the Irishman's explanation passed this long:.
He thought it was a simple but clever explanation of how a bailout happens:


"It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.

Selling Out the Future

Mass communications has been used to over-sell the future for more than a century. Over time this blog will show how an inflated vision of the future has generated excessive optimism, leading recently to the credit bubble that is crippling the real economy. The latest issue of the Atlantic Monthly (December, 2008) contains an example. Author Henry Blodget is a chastened former investment broker who gives his version of what went wrong in Why Wall Street Always Blows It. According to Blodget, the reason is in our DNA . We are programmed for optimism, no matter what evidence exists to the contrary. On page 86, he offers this encapsuled explanation: "The future is always uncertain -- and amid uncertainty, all sorts of faith-based theories can flourish, even on Wall Street."

On the opposing page is an ad by a major U.S. energy supplier. "Tomorrow Begins Today" is the tag line. It is one of the oldest themes in American commerce, and one of the most misleading. In fact, for the generation whose hopes are being dashed in the collapse of the stock and housing markets, the most blase forecasters don't see a turn-around for at least a year or two. Others think it might take the best part of a decade for that to happen.

The lesson is brutally simple. Once in a while the future runs out and -- like a demented game of musical chairs -- we are stuck in the reality of the present.