VANCOUVER (CP) - Each Canadian taxpayer owes $180,421 in federal, provincial, and municipal liabilities that total $2.7 trillion, despite paydowns against the national debt, the Fraser Institute says.

Federal, provincial, and local governments have accumulated $789 billion in direct debt and over $2.7 trillion in total liabilities, the conservative think-tank said Friday in a release.

"Total liabilities include direct debt and programs that the government has committed to provide, such as Old Age Security, the Canada Pension Plan and medicare," the institute said.

Net direct debt - liabilities minus assets - of all three levels of government fell from $847 billion to $789 billion between 1997-98 and 2001-02. But debt has grown over the last decade, the think-tank said, as in 1990-91 Canada's direct debt totalled $533 billion.

"Our most important message is that achieving and maintaining a balanced budget is only the first step towards fiscal responsibility," said Niels Veldhuis, the Institute's senior research economist and co-author of the study.

"Debt reduction and the proper funding of obligations, such as Old Age Security, are also essential to Canada's economic health."

In total, the unfunded liabilities of CPP, OAS, and medicare grew by 22.2 per cent during the five-year period covered in the study, to a total of $1.6 trillion.

"The effect of the unfunded liability is that either benefits will be cut, taxes raised, or obligations will be passed on to future generations," Veldhuis said.

Among the provinces, Ontario carries the heaviest total debt load. Federal, provincial, and local liabilities add up to $95,591 for each Ontarian. Prince Edward Island maintains the smallest total debt burden of $64,585 per person.

From 1997-98 to 2001-02, all of the provinces decreased their direct debt as a percentage of gross domestic product. Among the provinces, Alberta led the way with a 47.0 per cent decrease in direct debt as a percentage of GDP, followed by the Ontario with a decrease of 27.6 per cent.

Compared with other high-income countries, the institute said Canada has one of the highest debt burdens, measured as the ratio of debt to discretionary income per person.

Canada ranked 14th out of 19 high-income countries in 2001, high-income defined by the World Bank as countries those with average incomes in excess of $9,076 US.

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Originally posted by jeff house:
It's a scare story. After you tally up everyone's debt, then you ask: "Who do they owe this money to?" And the answer, at least in substantial part, is: other Canadians.

so if you divide the debt, we each owe plenty. If you divide up the amount we are all owed, it is also plenty.

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With these two old line parties exchanging majority governments every four and eight years, watch for even more of Canada's annual national income to be shovelled to the wealthiest Canadians and foreigners as our infrastructure and social fabric deteriorate. And the national debts will eventually resemble theirs as we, too, become more and more a bastion of socialism for the rich and free enterprise for the poor.

[ 12 June 2004: Message edited by: Fidel ]

A Review of Linda McQuaig's Shooting the Hippo: Death by Deficit and Other Canadian Myths - 1996

Linda McQuaig's book is about the causes and results of the debt. "It is about both the real causes and about those that are merely presented as such in the mainstream media. The book reads like a mystery novel. The crime has been committed and all the usual suspects are rounded up and investigated for their part in the debt. In the end, it turns out to be the least suspected factor, the one ignored by all, that is the culprit.

Backing up her arguments are interviews and publications by: a chief statistician at Statistics Canada who has been working on the statistics of social spending since the middle '60s; the man at Moody's bond rating service in New York who is in charge of setting the credit rating on our federal debt; and noted economists, among others.All of whom show that the deficit is not caused by runaway social spending.We are not anywhere near hitting a "debt-wall," and that fighting the recession (rather than eliminating social programs) would do the most to eliminate the deficit.

Spending on social programs has not contributed much at all to the increase in deficit according to a study put out by Statistics Canada.The study was written by Hideo Mimoto, chief of the social security section.McQuaig relates that he reached this conclusion by calculating how increases in social spending (little or none) since the early 1970s when the deficit was small, have contributed to the federal debt. For example, unemployment insurance has created one per cent of debt growth, and welfare only 4.5 per cent.As far as social spending is concerned one of the biggest contributions to the debt (at eight per cent of debt growth) was "protection of persons and property" which covers police, the military and prisons.Thus, if debt-heads like Manning and Martin were truly concerned about effectively attacking the debt they would be cutting back on police and prisons. McQuaig writes that in 1991, when the study was published, "We were spending roughly the same proportion of our Gross Domestic Product on social programs as we had in the mid-seventies, when our deficits were very small."

Her exposure of the political pressure of the finance department to get a retraction of these results published soon afterwards also reveals how little the powers that be are interested in open debate. The "retraction" that was published did not contradict any of the basic findings of the study.If anyone should be knowledgable about debt it should be Moody's of New York whose livelihood depends on producing credit ratings on coporate and government debt."

Deficit Pornography

[ 12 June 2004: Message edited by: Fidel ]

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Then the banks have nothing to do with it? No foreign borrowing either? No minority interests?

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Of course all of these things are involved, to some extent. But if Canadians owe, say, an average of $100,000.00 to "the banks", that is another way of saying that the shareholders of the banks have that much money coming to them.

Foreign borrowing does measure something real, and worth thinking about. But it, too, has to be measured against what foreigners owe Canadian institutions.

http://makeashorterlink.com/?L10D22D88

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...interest charges on the debt continue to remain the single largest expenditure for the federal government at $37 billion per year - that means that 22 cents of every revenue dollar taken in is used to pay interest.

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that means that 22 cents of every revenue dollar taken in is used to pay interest.

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Who is it who receives the interest? Is it the shareholders of Canadian banks? If so, it simply means that, in large part, the Canadian government owes money to Canadians who have loaned it money.

Obviously, eventually government debt can make it difficult for social programmes to exist, because too much money goes toward debt service.

But I have never seen any indication that 22% is too much. Or 32%. That's why I say that these are scare stories, because they do not tell you what a "proper" amount of debt service might be.

It is true that there may be a liquidity element to the story, too. That is, if I have no money to make CPP payments today, then it doesn't help much to say that, really, I am paying myself.

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Obviously, eventually government debt can make it difficult for social programmes to exist, because too much money goes toward debt service.

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Why wouldn't it make it harder to fund law enforcement, prison system expansion, legal system and militart since these areas account for more spending than social programs?.

According to this article, Canada's net external debt or liabilities fell to $209 Billion at the end of December. Canoe

And according to the IMF, economic growth is picking up around the world ...except Canada.

[ 13 June 2004: Message edited by: Fidel ]

This is tantamount to include in one individual's debt all the cost of future food, clothing, rent, etc. that person will incur.

Hideo Mimoto, a social policy analyst with Stats Canada since the 1960's, released a report in 1991 which broke down Canada's deficit payments like this:

• 50% of annual deficit payments(then) were due to compound interest on debt principal
• 40% was due to unpaid and deferred corporate income taxes
• 8% of annual debt service payments were due to program spending in general
• 4.5% was due to social welfare spending, not including health transfers to provinces
  

Old age pension pensions accounted for 6% and housing programs accounted for 3.4% .

Hideo Mimoto pulled this impressive report together and released it in 1991. The report put a gaping hole in the conservatives argument that social programs were responsible for Canada's perceived debt woes.

Mimoto was chastised for his report by Mulroney's ppl at a time when they were trying to scare monger about Canada hitting the debt wall unless we cut and slashed social program spending. It didn't matter that their case for doing so was, at best, a weak one.

I can't locate a web ref for the above breakdown of deficit payments, but it comes from Linda McQuaig's Shooting the Hippo: Death by Deficit and Other Canadian Myths - 1996.

[ 13 June 2004: Message edited by: Fidel ]

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Who is it who receives the interest? Is it the shareholders of Canadian banks? If so, it simply means that, in large part, the Canadian government owes money to Canadians who have loaned it money.

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I'm not sure what the banks have to do with this discussion. Some of the Canadian debt is held by banks to be sure. Without doing any analysis I would expect that much more would be held by various pension funds. In either case, you are absolutely correct that the interest is largely owed, one way or another, to Canadians. However, this is not necessarily the same group that are currently paying taxes and you can't simply say that their Canadian so the debt doesn't count.

However, that aside, the scary numbers are the unfunded liabilities.

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I think including 'unfunded liabilities' in the debt is at best, misleading, and at worst, dishonest.
This is tantamount to include in one individual's debt all the cost of future food, clothing, rent, etc. that person will incur.

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Try telling that to OSFI the next time the shut down a pension fund or insurance company because they have insufficient assets to meet their liabilities.

[As an aside, it's not that long ago that the Chief Actuary of the CPP resigned because he was asked to change his assumptions in order not to embarrass the Minister. He refused.]

[ 13 June 2004: Message edited by: abnormal ]

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Who is it who receives the interest? Is it the shareholders of Canadian banks? If so, it simply means that, in large part, the Canadian government owes money to Canadians who have loaned it money.

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Sure, we owe a net external debt to foreign banks, and to wealthy foreign and Canadian nationals at leg break interest rates. In McQuaig's book, her then interview with Moody's Investment Firm head in NYC, Vincent Truglia, where corporate and national credit ratings are issued, revealed that Canada's super wealthy were making a habit of trying to convince Truglia to downgrade Canada's credit rating. He said that Canadians were the only bond holders he knew of who atempted to convince/coerce investment houses to do such a thing in the mid 80's early '90's and presumably now as well. The super rich live off compound interest, and the higher the rate the better for them and bully for Canadian taxpayers.

It's better that these things are not revealed to the Canadian public who shouldn't be asking such questions in the first place.

Orwell's 1984 character, Winston Smith, works for the elitists right here in Ottawa.

[ 13 June 2004: Message edited by: Fidel ]

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...tax payers owe the debt but it's the shareholds who reap the financial benifits (sic)...

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That would be true if the majority of the monies invested by the banks were in fact shareholders funds. If you check you'll see that only a percentage of the assets of a bank belong to the shareholders. The majority of the assets belong to depositors et al and the majority of the interest actually gets passed along to them and does not accrue to the benefit of shareholders.

I don't have a reference but I'd be very surprised if pension funds don't own significantly more Canadian government bonds than banks do. The interest there is owed to pensioners (current and future) even though it's being paid by current working stiffs.

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Since the Liberals implemented the Canada Pension Plan Investment Board in 1998, CPP funds have grown to about $70 Billion. And so our national plan, representing anwhere from 10 to 15 million workers CPP contributions, is still not worth what the Ontario Teachers Pension Plan has grown to in net worth.

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This statement means one of three things: (1) the CPP is grossly underfunded in which case contributions will be made by future taxpayers, (2) the Ontario Teachers plan is grossly overfunded, or (3) you can't make comparisons of this variety without twenty pages of qualifications.

While I'm not sure that (1) isn't true I'm positive that (2) is not true. Leaves us with (3). This sort of comparison is a classic apples and oranges scenario. The Teachers plan is a "standard" defined benefits plan that pays a certain percentage of wages to retirees. CPP is no such thing. In some senses it's much more comprehensive but it does not pay most retirees anywhere near the same level of benefits that the Teachers plan does so you can't possibley argue that it needs the same level of funding. Because contribution levels are based on the required level of funding, not the number of participants, it's foolish to expect that the pools should be the same size. Expecting them to be the same size is kind of like saying "Ten of us were saving to buy motorcycles and we've put aside a total of $5,000 over the last while but Joe down the street is saving to buy a house and has saved $20,000. That's not fair cause there are more of us!!" Simply put, if the teachers pension fund represents a bigger bill, it needs a bigger bank account - besides, even if the calculations are wrong and the CPP fund is too small (should the word be when?) we know that the taxpayer will be on the hook. Not quite so clear with the teachers fund.

[ 15 June 2004: Message edited by: robbie_dee ]

[ 15 June 2004: Message edited by: Oliver Cromwell ]

In the United States, millions of workers took hits on their retirement investments when their 401K plans were invested in stock market flops like Enron(Enrong), Global Crossing(cross up), Tyco, Adelphia and World Com(Con). Their workers, and ours, are not preferred creditors when companies with publicly traded shares go tits up.

The NDP would change that "peculiar" law and make Canadian pension fund investors preferred creditors when everything from insider trading to accounting fraud occurs.

OTTP funds are somewhat diversified by what I can tell. Teachers lost a few percent on shares like Brie-X and Nortel. John Roth made out like a bandit though. $Billions can evaporate overnight on the stock market.

American taxpayers will pay out something $32 Billion for 30 years to cover Savings and Loans scandals involving prominent conservative politicians in the U.S. .Shit happens, and the Liberals and Conservatives know it but would rather we go along with their plans to use our CPP as they see fit.

If the telephone system is affordable, why not national pension plans, health care and other things ?. Corporate welfare statism isn't cost recoverable. And the Yanks have the national debt to prove it.

[ 15 June 2004: Message edited by: Fidel ]

With all due respect, I don't understand a thing you said in your last post.

If you invest in stocks you can't be a preferred creditor regardless. What I think you are really saying is you want all of the upside of being an equity investor but none of the downside. Why should you, or anyone else, have that option? Besides, the term preferred creditor only applies in bankruptcy so it doesn't really protect equity investors in most cases. It doesn't protect the guy that decides to invest his retirement savings in stocks that he buys at say $50 only to see them go to 5 cents within a couple of months. As long as the company is solvent (i.e., has book value greater than zero) he is entitled to whatever is left after anyone senior to him is paid off. What about his $50 you say - well, that really had nothing to do with the book value of the company. It was "market value" which was probably a not insignificant multiple of the book value of the company (translation - the company was only worth $10 a share but for a number of reasons the market thought it was worth $50). Ignoring the other issues it creates, how do you determine what a preferred creditor's investment in common stock is really worth [hint, it will have nothing to do with what he paid for it - that price is a function of the market, not of the assets of the company].

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Originally posted by abnormal:
If you invest in stocks you can't be a preferred creditor regardless. What I think you are really saying is you want all of the upside of being an equity investor but none of the downside. Why should you, or anyone else, have that option?

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The upside works both ways and is somewhat lopsided, Abi. The World Bank estimates that only about 15% of the world's pop'n over the age of 65 have any retirement income from pension plans at all and say that there has been a world wide assault on private and public pension plans. If corporations and friends of government want access to large pools of capital, then who are the ones with cap in hand and outstretched hands in this scenario ?. The degree of risk and reward already varies whether they are common shares or preferred stocks. Why should blue chip'ers have all the fun might be a better question?. And why do companies have to fold up when their profit margin's don't exceed Wall or bay Street's expecations?. Why can't they operate at cost until better times arrive ?. Why do corporations have to eat up the most benign competition?. The aftermath of accounting and stock fraud scandals in the U.S. has affected Canadian investments as well. The Clinton admin listened to Wall Street and Alan Greenspan when they took a hands off approach to finance and the stock market during the roaring '90's. The tech wreck saw trillions of dollars of stock market value go up in smoke as bad debts and worthless paper. Private pension plans lost billions, including the Ontario Teachers Pension. What gives CEO's and CFO's the right to cook the books and abscond with worker's pension funds?.

I think it's obvious that corporate greed is causing companies to purposely underfund private pension plans. Workers are worried about their retirement plans, understandably.

Online E-trade and Ameritrade's were supposed to rejuvenate North American economies. Working class people were supposed to come in at the bottom while the innovative people sold off at the top of the market. It was the pinnacle of unbridled capitalism finally taking over and creating unprecedented wealth and perpetual prosperity for all. But confidence in the stock market took a nose dive after Enron and World Con, and so I think the experiment with free for all pyramid schemes in stock market has lost favour. Personally, I think this would be an excellent time for the NDP and unions to push hard for preferrential creditor status for Canadians. I think that gaining this kind of status for private and public pension plans would instill confidence in stock markets. One less reason for dishonesty and accounting "mistakes" could be a good thing?. I don't know because I'm just a worker and have no say in the high level discussions taking place. Their intent to scheme and rob pension funds and profit from pump and dump aside, many of us would like to see more regulation and not less. That's all from me.

[ 16 June 2004: Message edited by: Fidel ]

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Originally posted by Sports Guy

Huh?

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My sentiments exactly.

Fidel,

It's clear you don't know the difference between preferred creditors and preferred stockholders.

For your information (and at the risk of being condescending by providing an oversimplified answer) a preferred stock is effectively a bond. It looks a lot like a debt instrument and pays dividends (effectively interest payments) if the company has the money to do so. If it doesn't the preferred shareholder gets nothing. If he's lucky he may get it at the next dividend date. However, other than interest he gets no upside - that is, a preferred that originally sells for $100 rarely trades for much more than $100 unless market interest rates have fallen a lot.

There is also nothing special about preferred shareholders. They are simply individuals, corporations, whatever, that have decided to invest in a company this way rather than via common stocks. In the event of insolvency they do rank above common shareholders but below debt. If you as an individual want to buy common stock you can do so. If you want to buy preferreds you can also do so. Just understand what you're doing and what you're getting. If the common stock of the company triples in price you won't see an increase in the price of preferreds (if anything you'll see a drop because the market has likely decided that the company is a better credit risk so spreads will narrow).

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And why do companies have to fold up when their profit margin's don't exceed Wall or bay Street's expecations?.

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Not sure what this is supposed to mean but simply put, they don't. Companies fold when they are insolvent - simply means that their assets are less than their liabilities.

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...corporate greed is causing companies to purposely underfund private pension plans.

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This happens to be illegal and the consequences are non-trivial to say the least. However, the real reason pension funds are underfunded has little to do with "greed". Instead it has to do with a simple fact. If the Fund is underfunded (i.e., needs more money) the liability belongs strictly to the corporation - that entity has to top it up. However, if there are surplus funds, employees try to lay claim to them, even if the plan was completely non-contributory (i.e., every penny was contributed by the employer). The result, no employer wants to contribute a penny more than absolutely necessary. Investments are off and the value of the fund is $100 million less than required? Add the $100 million and next year when (if??) investments recover the fund is $100 million overfunded you can't take it out and may actually have to give it away. Short answer, don't contribute - problem is, next year if things have gone badly the Fund is $200 million in the hole. Can't afford it and the company's bust? C'est la vie. The existing employees didn't want their jobs or pensions anyways. Can't find the link but one of the major consulting firms recently published a heavy duty study on this very issue.

The answer is not simple and I do no claim to have it.

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...preferrential creditor status for Canadians...

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Haven't got the slightest idea what this means and if you do I'd like to hear it. The price of common stock is only vaguely related to book value (and as I pointed out earlier, even this latter value is fuzzy at best). As others are fond of pointing out, much of the market is a zero sum game. If you buy stock at $50 and it promptly falls to five cents you just lost $49.95. However, someone else has the $50.00 and you have five cents [ignoring frictional costs]. Grand total made or lost -- zero. By the same token, if you bought at five cents and the stock goes to $50, whoever sold to you has five cents, you have fifty dollars for a net gain of $49.50.

Now suppose you pay $50 for a company that only has $1 in assets. Why would you do this? Could be you think that someone will pay you $100 somewhere down the road. Could be you think that the company will really be worth $100 somewhere down the road. Could be ... In most cases it's the first. Now, you've just paid $50 for something that's worth $1 because you think you can sell it for $100. What happens if you're wrong and nobody's willing to pay more than $1? Preferred creditor or not, there is only $1 there to pay you. Sorry but you're SOL. [I do have to repeat that the concept of preferred creditor only applies in bankruptcy and, to make matters worse, there are a variety of types of preference.]

Having said that, if you are dumb enough to fill your pension plan with your employers stock you have to recognize that this represents an accumulation of risk and I wouldn't exactly label this as intelligent or even survival oriented.

Having said that I would support legislation forbidding people from filling their pension plan with their employer's stock.

Part of me says that this is legislating against stupidity which, to be blunt, is impossible.

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What gives CEO's and CFO's the right to cook the books and abscond with worker's pension funds?

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Originally posted by abnormal:
Nothing. Absolutely nothing.

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For your information (and at the risk of being condescending by providing an oversimplified answer) ...

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Yes,appparently you don't like the jist of what I have to say so you're attempting to discredit my opinion. That's ok because I saw it coming.And so you go off on some wild tangent attempting to set me straight about blue shares paying dividends and common shares. You have a gift for pointing out the obvious. Thanks for regurgitating it for all of us stock market weenies to learn from. I was completely lost in the world until that gem of a post was nailed up. We should pay you for it.

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Not sure what this is supposed to mean but simply put, they don't[companies folding up when profit margins are not realized]. Companies fold when they are insolvent - simply means that their assets are less than their liabilities.

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How about hostile takeovers where assets are still worth more than debts. Assets are sold off, people lose jobs and pension funds disappear into thin air ?. So no, a company doesn't have to be insolvent in order to fold up. In many cases, liquidity is why a company is swallowed whole and its workers put out on the streets. Understand, smart guy ?. The profit margin's on Wall and Bay Streets are what? 5-10% or more ?. In countries like Japan, some companies will operate at cost during economic recessions and smaller than 5% margins in maintaining full employment of its workers. In North America, CEO's and top heavy management live by downsizing and are not req'd to detail the means by which increased profits are had during downturns and slow economies. They are loyal to no one, especially workers with families ... and who contribute to pension funds.

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This happens to be illegal[underfiunding pensions] and the consequences are non-trivial to say the least.

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Ok, I'll play cagey too, but Iii think it happens all the time when companies threaten job security with offshoring or plethora of underhanded tactics at their disposal during contract talks. De-indexing of pensions is a favourite concession.

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However, the real reason pension funds are underfunded has little to do with "greed". Instead it has to do with a simple fact. If the Fund is underfunded (i.e., needs more money) the liability belongs strictly to the corporation - that entity has to top it up. However, if there are surplus funds, employees try to lay claim to them, even if the plan was completely non-contributory (i.e., every penny was contributed by the employer).

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It has everything to do with shareholder and top management greed. Fully funded pension plans, as you've mentioned, cut into profit margins... all the time. The complaints among real Canadian workers is that companies have contributed to private pension funds for longer periods while using those funds for their own purposes. I know of several examples where pension funds were simply not topped up at regular intervals and concessions made. What's left of Canada's steel makers have consistently underfunded their workers pension funds. And so once again, you're entirely wrong. It does happen.

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Haven't got the slightest idea what this means and if you do I'd like to hear it. The price of common stock is only vaguely related to book value (and as I pointed out earlier, even this latter value is fuzzy at best).

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And I did mention the fact that stocks can become inflated in value. Their values are grossly distorted when when foreign and North American investors act in a herd-like mentality when, for example, they rifle their money out of foreign currencies, bonds, whatever, all at once and in like a time frame of 48-72 hours and creating instability in an economy. And they put it into tech stocks or Mexican peso's or some stock they have no idea what it's worth except that they know everyone else seems to be putting their money there.

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As others are fond of pointing out, much of the market is a zero sum game. If you buy stock at $50 and it promptly falls to five cents you just lost $49.95. However, someone else has the $50.00 and you have five cents [ignoring frictional costs]. Grand total made or lost -- zero. By the same token, if you bought at five cents and the stock goes to $50, whoever sold to you has five cents, you have fifty dollars for a net gain of $49.50.

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Well thanks much for your stock market tutorial on pyramid schemes, but people and pension funds have lost a lot more than $50 bucks worth of share value when John Roth made out like a bandit with his own stock sell-offs just before Nortel took a big swan dive.

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[I do have to repeat that the concept of preferred creditor only applies in bankruptcy and, to make matters worse, there are a variety of types of preference.

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Congratulations, you've come full circle as this is exactly what I was getting at. When a company goes tits up, preferred creditors are often paid so many cents per dollar of debt owed them with what's left of the company. You've just nailed down a moot point all to heck for whatever reason. But if you thought you were the only one who realized when preferred creditor status is invoked, you assumed wrong. I've worked for several high tech's in Kanata that have gone tits up, and we were locked out within a few days notice.

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Having said that, if you are dumb enough to fill your pension plan with your employers stock you have to recognize that this represents an accumulation of risk and I wouldn't exactly label this as intelligent or even survival oriented.

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Well I'm glad that you fully understand what it is to gamble on the stock market and consider everyone else but yourself to be dumb. We've got an in-house stock market genus who likes to lord it over us peons at Babble. Isn't it past your cocktail hour at the Peninsula Club?. LOL! You can be very proud of yourself, but you've just made more of what is my case for spreading peferred creditor status to worker's pension funds. Let the big wheels gamble and take risks. That's what capitalists are supposed to do, not working class stiffs. If they want access to large pools of capital, then someone has to pay the piper when books are cooked and someone is sentenced to 10 but out in two for good behaviour and ends up with ten summer homes in Florida and Caribe while workers are hung out to dry and pensions long gone.

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Having said that I would support legislation forbidding people from filling their pension plan with their employer's stock.

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And I'll throw my support behind the NDP so they'll fight for workers rights to retire at 65 when their joints are worn out from decades of working hard and overtime. Preferred creditor status for pension funds should inject a little honesty when the CFO's are and stock promoters are on the job.

[ 17 June 2004: Message edited by: Fidel ]

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Originally posted by Sports Guy:
Fidel, there is too much for me to tackle in one sitting, however, I have one question. Accepting your premise (which I don't) that pension funds deserve preferential status over creditors in the event of bankruptcy, why should the stock held by my pension plan rank above the stock held by a mutual fund in my RSP?

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The premise is this: If a company goes bankrupt, and your pension fund happens to be invested in that company, then the pension fund becomes a preferred creditor to the extent of assets of that company. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates.

Abnormal is off on some tangent explaining to us how shares are publicly traded on the stock market. Abnormal rambles on about the stock market being a zero sum game. Gambling is a zero sum game where the losers give everything to the winner. No value is created whereas investing in a company creates overall value in society. A company will sell shares on the stock market to raise needed capital. Problems with the real value of a companies shares come into play when investors try to assess that companies worth based on future profits. There are some basic rules and regulations for how a company accounts for and produces those projections in quarterly reports to investors and securities agencies. Eventually, the real value of a company is reflected by their share values traded on the stock exchange.

What I don't subscribe to, is what I think ppl like Abnormal are implying, that in every case where money is invested in the stock market, that us little guys and private pension plan members must cede our collective investments to some unwritten rule of stock market risk taking that is tantamount to sacrificing our first borns to morlocks of Bay and Wall Streets. We have real leadership in the NDP who say its feasible and doable to garner preferred creditor status for private pension funds, and for Abnormal's sake, when a company goes tits up and seeks protection from creditors under Chapter ...13? bankruptcy law. As it is now, bond holders, preferred share holders and every other creditor who can make a claim are paid off first in the event a company goes chapter 13, and common share holders are left with the scraps. Common shares are riskier than preferred shares because of that, but the upside is that common shares will outperform bonds and preferred shares in the long run. Or at least that's how I understand it. But the exception is when risk is realized, and common shares take the biggest hit when the company becomes insolvent. It's just a rule change the NDP is proposing to benefit the little guy, and I'm not sure how they plan to implement it or whether certain concessions would be made with voting shares or what the ... . I'm not an NDP insider, but I don't really see Harper or Martin pressing Jack Layton on this issue because they seem to have their hands full when evading issues Jack presses them on.

Preferred creditor status for pension funds exists all over the world for what they call defined benefit plans. It's a real concept, and the NDP is proposing that it be applied to private pension funds invested in companies as stock shares. The NDP also says that the feds could be doing better things with our CPP investments rather than investing them in big tobacco and big military in the States and PQ where WMD are made. Star Wars is another make-work project by the American conservatives and their wealthy friends on the receiving end of corporate welfare. Stephen Harper says he wants to curb corporate welfare, but we NDP'er realize he's talking out of both sides of his mouth when he also supports the American militarization of space that will cost taxpayers trillions by the time they figure out that all it's done is make a handful of super rich ppl even richer. It's a giant con.

[ 17 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by Fidel:
Abnormal rambles on about the stock market being a zero sum game. Gambling is a zero sum game where the losers give everything to the winner. No value is created whereas investing in a company creates overall value in society. A company will sell shares on the stock market to raise needed capital.

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I must nitpick and point out that economists have concluded that since IPOs represent a tiny, infinitesimal fraction (perhaps 0.5% in any given year) of total share turnovers in any given year on any given stock exchange, they can be entirely excluded from calculations of investment in GDP.

That means the stock market is agreed by economists (this is in standard econ 101 texts if you care to look it up) to contribute exactly nothing to GDP (National production).

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Originally posted by DrConway:

I must nitpick and point out that economists have concluded that since IPOs represent a tiny, infinitesimal fraction (perhaps 0.5% in any given year) of total share turnovers in any given year on any given stock exchange, they can be entirely excluded from calculations of investment in GDP. As their president Dubya said, "We should make the pie higher", and I've got a feeling he's a genius in disguise and pushing the world way to the left with his yeehaw foreign policies... if it weren't for all the death, destruction, appalling greed and lies.

That means the stock market is agreed by economists (this is in standard econ 101 texts if you care to look it up) to contribute exactly nothing to GDP (National production).

Put that in your pipe and smoke it.

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I will have to look it up bcuz now I'm curious. I'll have to take your word for it for now. But as a socialist, I understand that the current economic model assigns value to capital and labour but does not account for social costs in the production of goods and services. Without a complete economic model, the results will be distorted with rapid growth followed by steep declines.

James Galbraith(I think he's the son of JK, born in Canada ?) says in this article that the "new economy" IT boom in the States alone was worth 2% of GDP and several hundred billion in incomes. It was too short lived and didn't have a chance to gain a foothold because, as Galbraith points out, the Yanks descended into recession. He also points out that Smithian free market Reaganites espoused the power of "flexible"(slave wage) labour and allowing inequalities in income were key for the creation of wealth. But as JG says, the IT boom was marked by a highly skilled work force earning good wages that highlighted the roaring 1990's and not low wage slavery. Equality moreso than inequality was key. And I'll add to that that the silicon economy proved that we can have full(er) employment without the cost of skyrocketing inflation as Joe Stiglitz mentions in his book, "The Roaring 90's."

The tech bubble inflated when foreign investors "over invested" in what they saw as a safe and protitable tech market at the end of Asian and other financial crises around the world.

This is a really good article by the younger Galbraith on the real American economic model, and it isn't what Ronnie Raygun and Smithian capitalists would've like to hear. Social programs like pensions, education, housing and health care are major economic drivers creating wealth in the U.S. . No wonder big business wants to get their hands on our publicly owned family jewels and silverware here in Canada.

The Real American Model - James Galbraith

[ 17 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by DrConway:

That means the stock market is agreed by economists (this is in standard econ 101 texts if you care to look it up) to contribute exactly nothing to GDP (National production).

Put that in your pipe and smoke it.

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Doc, yes I am well aware that the stock market itself is not included in GDP calculations. What the market provides is liquidity and generates the capital that is then invested in productive capacity and that is measured in GDP. So to say that the market contributes nothing is false.

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Originally posted by Sports Guy:
Fidel, I don't think you addressed my question regarding pension plans vs. other types of investors. What I am curious about is why you feel that penion plans deserve extra protection.

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First of all, we're talking about the ability for retired Canadians, who, coincidentally, have worked all their lives, to pay for their housing, food and clothing and have a social life, which I and many others believe is what makes living in a democracy worthwhile. They are not capitalists when they earn $30K, $40K or $50 thousand a year. This is something that you're asking me as to why it should enjoy no more protection than someone with excess disposable income wanting to score on the stock market with high risk, high return stock ?. It's the nature of the funds being invested. There is a social aspect of pension plan funds that is being ignored here, and it needs to be accounted for, not just with pension plan investents, but in all aspects of the economy where social needs currently have no dollar values assigned to them. I believe you'll provoke a similar answer from most social democrats on these issues.

Preferred creditor status is not so much extra-protection as it is being prudent with Canadian's money and wanting the same preferred creditor status that other investors already enjoy in case of bankruptcy proceedings, imo.

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Pension plans are subject to stringent legislation that mandate diversification, and they are professionally managed.

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Yes, and this is why the NDP shares many Canadians concerns about CPP now being invested in big tobacco and big military. We'd like to see a lot more ethics combined with a little bit of professionalism when it comes to investing very large pools of national revenue like CPP.

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Whereas for example many babblers are consultants or independant contractors and don't have access to pension plans they are dependant on RSPs and it is highly unlikely that these people have portfolios that are either as well managed or diversified as a typical pension plan.

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I think this is all all the more reason to have a well funded public pension plan. These RRSP's are often sold to people with the idea that they need to maintain as high a standard of living or higher than they enjoyed during their working lives. In reality, kids move out, homes are often sold and parents move into smaller ones, apartments and or retirement homes not very long afterwards. There are many Canadians who cannot afford to even take advantage of RRSP contributions.

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Why should pension plans, which are already creditors since a high percentage of their investments will be in fixed income, receive preferential status to individual investors?

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I think a better question might be, why do giant corporations and stock promoters want access to large pools of capital in the first place ?. Do we simply concede any and all rights to our own money when we are making such large and very powerful pools of funds available for investment houses to play with ?.

Why has a large part of the risk of research and development of everything from pharmaceuticals to advances in computer technology and internet tech, metallurgy, lasers, satellites, fibre opitics been borne mainly by taxpayers and the resultants technology and patents simply handed off to a few hundred wealthy families and corporations, now referred to as the the market or private enterprise ?. In Canada, oil companies and an increasingly foreign owned industrialised sector will often not venture into high risk R&D unless the taxpayers extend to them financial and loan guarantees for exploration drilling and research grants. Big pharma in the States and Canada have not produced anything as life saving as Banting's insulin or Sabin/Salk's polio vaccine in decades and relying on low risk, low tech stomach and post nasal drip remedies and Aspirin and Tylenol version XXVIII with extended patent protection for 20 and 30 years. Where is the risk in that ?. Where is the risk for private companies like Apple whose graphical user interface or much of IBM's original computer tech developed by about 100 U.S. government scientists during the cold war years because we had to keep up with the Soviets with their nationalist agenda?. Alas, the taxpayer has borne the risks for much of our current private sector development and the technological advances that have propped up this free market illusion. The NDP says that CPP can be used for more socially lucrative public investment than pouring people's pension plans into high risk private sector funds.

I think if there is worry that high risk stocks would suffer because of new guarantees for private pension funds, then perhaps working class people shouldn't be asked to ante up for shortcomings of a highly volatile stock market. Where are the venture capitalists and other high rollers ?. Let's see the risk spread for their portfolio's.

[ 17 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by Sports Guy:
Doc, yes I am well aware that the stock market itself is not included in GDP calculations. What the market provides is liquidity and generates the capital that is then invested in productive capacity and that is measured in GDP. So to say that the market contributes nothing is false.

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The point is, further, that IPOs contribute such a vanishing fraction of total fixed investment that they could disappear and GDP would sail on as smoothly as ever, and corporations could continue to produce goods and services exactly as they have in the past.

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Originally posted by DrConway:
The only way the stock market is not zero sum is if a corporation issues fresh shares into the market. Otherwise, it is zero sum since any new sucke.. I mean gamb.. I mean "INVESTORS" who come in are either buying out someone else's shares who is leaving the market, or is purchasing someone else's shares who is in turn, purchasing some other guy's shares, who.... ad nauseam.

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Originally posted by Oliver Cromwell:
No, that's pushing the argument too far. Total investment is determined by total savings, but financial markets allocate those savings to individual firms. If savings are consistently allocated to unprofitable investment projects, returns to savings are reduced, which reduces savings and investment.

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This assumes that savings is translated into investment. With respect to your comment about the allocation of stock-market-savings, the specific case of my general statement is the assumption exists that when person X buys shares, that the money goes to the corporation which issued them.

This is only true at the IPO, which has already been shown to be a minuscule fraction of total share turnover.

In all other circumstances, the firm which issued the shares receives no monetary benefit from a share purchase.

Let us say you own $50 worth of IBM shares and I want your IBM shares. You tell your broker to sell your shares for $50 to whoever will buy them. I tell my broker to get $50 of IBM and to arrange it with your guy first and then in the exchange second. Your guy says to my guy that $50 is a go, and we've swapped assets.

Where in this does IBM get the money?

The obvious conclusion brought about by my rhetorical question above is that the Say's Law assumption that savings is translated over into investment does not hold when it comes to the stock market.

[ 17 June 2004: Message edited by: DrConway ]

quote:

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Originally posted by DrConway:
This is the open secret of economics: That the science itself recognizes that the paper economy contributes nothing to the real economy.

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What financial markets (stocks, bonds and derivatives) provide to the economy is liquidity. These markets allow firms access to capital and individuals and institutions access to investment opportunities in an efficient manner. Thus financial markets are to the economy what a spreadsheet program is to a financial analyst a tool which makes things run more efficiently and without which projects of a certain size would not get done.

It used to be thought reasonable for governments to simply print any money they need to borrow at no cost at all. But neoliberals were looking for ways to stabilize and control capital. So they simply adopted the monetarist view to accomodate.

Take "third world" development for example. If money had any real value then a poor nation could simply print the cash and start using it to build roads and hospitals and schools, buy food, hire teachers, doctors and scientists, stimulate industrial growth by providing a bedrock of infrastructure and social services. But the problem is that peasants in vast majority of the world need concrete things that are unavailable or in great demand. And poor countries must borrow to buy them. That is, they must adopt an artificial form of exchange and everything that goes with it to simply get basic necessities.

There is a huge cultural gap between the neoliberal value system that supports the bogus faith in market economies and the actual economic needs of developing nations. To me it seems that no the developed nations are simply too stupid and inflexible to even comprehend the needs of the third world. The WTO and the World bank impose financial conditions at the cost of all else and while this is economically efficient it is highly "socially inefficient" (to quote an old economics text.)

Canada as a nation is not as I see it in some aspects different from a developing nation. Of course we are very rich and capitalism thrives in our industtrial centres and big cities. But we have an enormous hinterland with many small communities. They also use services and the social infrastructure that the private sector market economics will not provide.

Redirecting the wealth to accomodate these communities are what taxes are all about. The result is manifold and cannot be purely measured on the government bottom line since it is almost by definition a "non-profit" institution.

No one, to use a sports analogy, would think it right to have a professional hockey game for the Stanley Cup played without a referee. No one would expect the referee to score goals or kill penalties, or coach or train or scout for new players in order to be paid their wages. No one would expect them not to get paid. Look at any sports arena. They make whopping profits on sports events but they don't score goals or sink baskets either. It is expected that the social framework of sporting events will be properly maintained, indeed often luxuriously designed and enhanced. No one questions the relative waste or expenditures there.

Take the Skydome, funded and built by the public sector in conjunction with private lenders under the Peterson government.It was eventually sold to the private sector and has been profitable ever since. What is seldom mentioned is that the debt related to it was kept by the government of the day (some $200 million) in an effort to sweeten the pot so to speak.

Now the same people who would laud this as a great solution (Harper Tories and Martin Liberals or Rae NDPers)and sound fiscal management are the same people who rail on and on about government debt!

There is a vast hypocritical divide in the media in respect of the government/private sector division. It denies the fact that markets are socially inefficient and rarely never unmodified in some manner by the communities in which they exists. (Think of Iraqi oil appropriated by US corporations in the name of a superior rational market).

As pointed out earlier, each person may owe a lot but they also have spent this money wisely and developed a powerful economic engine. The right wing claims that it is only private shareholders who can claim any right to the profits of that engine that has been paid for by everyone.

I don't agree with this notion.

[ 19 June 2004: Message edited by: DonnyBGood ]

I thought it was interesting that former IMF'er, Joe Stiglitz pointed out that those countries now subscribing to IMF/WB economic austerity reforms, Russia, poorest African nations and Latin America are still mired in debt. These nations tend to have vast mineral and oil wealth but are not progressing as fast or as far as China, India, Singapore, countries that spend more on social and public infrastructure in emphasizing human capital over natural resources they do not have.

The Sandinistas and other communists in Latin America were actually building hospitals and schools without the aid of the IMF. That is, until the contras and other CIA backed mercenaries targeted them for bombing in the 1970's and '80's. Economic theory sometimes doesn't mention or account for those unnatural market forces.

[ 19 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by Fidel:

I thought it was interesting that former IMF'er, Joe Stiglitz pointed out that those countries now subscribing to IMF/WB economic austerity reforms, Russia, poorest African nations and Latin America are still mired in debt. These nations tend to have vast mineral and oil wealth but are not progressing as fast or as far as China, India, Singapore, countries that spend more on social and public infrastructure in emphasizing human capital over natural resources they do not have.

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*sigh*

Stiglitz was at the World Bank, not the IMF.

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Originally posted by Oliver Cromwell *sigh* Stiglitz was at the World Bank, not the IMF

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Sorry, but I didn't say he worked for the IMF, now did I, you wanker. "IMF'er", "World Banker" etc often refer to those who peddle what's known as the Washington consensus. In fact, Stiglitz resigned from the WB, as did Davison Budhoo, and are just a few of the Fund's strongest critics.

quote:

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The IMF does not force countries to borrow; the IMF only gets involved when countries are no longer able to service their debts. China, India and Singapore never had debt problems, so the IMF never had to get involved.

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Thailand has followed IMF/WB structural adjustment prog's closer than any other, and they've faired about the worst.

Singapore, socialist since the 1960's, has risen further, faster than Hong Kong. And the student protests at Tianenmen were for democratic socialism, not WB/IMF policies or pro-western support as many seem to believe. India has millions of poor, but they are creating prosperity and attempting to break the cycle of poverty by nurturing certain amounts of social democracy. India's economy is growing at an unprecedented pace.

These two agencies', the IMF/WB, economic reform policies in the third world have been catastrophic. Instead of development and favorable adjustment, the 3rd world has experienced rapid economic and social decline. And that decline is linked directly to the WB and IMF's Structural Adjustment Programs which are a condition for receiving monetary aid.

IMF-World Bank structural adjustment programs are supposed to reduce consumption in developing countries and to allocate resources to manufactured exports for the repayment of debt to the WB/IMF fund. And the problem is that these nations are being required to hold certain amounts of currency in reserve while paying leg-break interest to countries that they owe money to. This is forcing undue economic hardship on 3rd world nations. After WWII, Germany refused to pay more than 3.5% of its export income on debt repayment. Today, the world creditor nations, including Germany, are demanding that the 3rd world spend up to 25% of their export income on debt repayment; repayment of principal debt that has already been paid back several times if it weren't for leg-break interest rates by foreign banks and their wealthy shareholders and super-rich nationals. Stiglitz says that these policies, which amount to colonialism, have caused "overproduction of primary industrial goods and a precipitous fall in their prices. It has also led to the devastation of traditional agriculture and to the emergence of hordes of landless farmers in virtually every country in which the World Bank and IMF operate. Food security has declined dramatically in all Third World regions, but in Africa in particular. "

I suppose some people think that gravity is the force that's holding those nations back from progress. Liberal democracy is a sham.

[ 19 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by Fidel:
Sorry, but I didn't say he worked for the IMF, now did I, you wanker. "IMF'er", "World Banker" etc often refer to those who peddle what's known as the Washington consensus.

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Ah. I apparently made the common wanker mistake of inferring that "IMF'er" was a noun referring to someone associated with the IMF. Thanks for the correction.

I don't think anyone would claim that the IMF never makes mistakes. But we'd all be very much interested in what policies the IMF should be following. And I, for one, would be very interested in hearing a rigourous argument that explains exactly why those alternative policies would be an improvement.

[ 20 June 2004: Message edited by: Oliver Cromwell ]

Further, if interest rates go up, this amount will go up as well.

I should caution that for conservatives who think that the NDP's commitment to balanced budgets means the end of interventionist government, they have another think coming. If we can't run deficits to accomplish our objectives, we will have even less hesitation about raising taxes to do it, or to impose all kinds of regulations and rules.

but it also seems to me that "we" equals middling to lower income Canadians and "ourselves" equals Canadians with enough extra cash to buy Cdn Savings Bonds.

It also seems to me that Paul Martin (next stop: Rocket Science for that boy wonder!!) engineered this transfer by looting the EI fund year after year and giving the money to bond holders both domestic and foreign.

It also seems to me that wealthier bond holders do absolutely nothing with their money but "invest" it further in other financial market instruments.

If this is the domestic financial market, then there's some nominal gain, but if it's a foreign financial market, then the money is completely removed from Canada's economy.

Oliver Cromwell mentioned that this sort of investment, if profitable, increases the pool of savings for further investment. While, Sports Guy (I believe) mentioned how the financial markets provide liquidity.

But given what's been said about the infinitesimal (sp??) proportion of financial mkt investment that goes to IPOs (and how much of this is for productive undertakings?) I can only ask "liquidity for what?" and "increase the pool of savings for further investments in what?" ... more liquid investments in further useless investment while the real economy goes begging?

It seems to me that the amounts of money scooped out of the real economy and sent into the cyber-space perpetual motion machine of the stock and bond markets is tangible evidence of the resiliency of our society. The gov't might as well have taken that money and flushed it downthe toilet.

Imagine if we'd spent that money on universities or health care? or sustainable energy projects? or housing?

quote:

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Originally posted by thwap:
But given what's been said about the infinitesimal (sp??) proportion of financial mkt investment that goes to IPOs (and how much of this is for productive undertakings?) I can only ask "liquidity for what?" and "increase the pool of savings for further investments in what?" ... more liquid investments in further useless investment while the real economy goes begging?

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It gets even worse. New share issues by corporations have, actually, in recent years, been less than share buybacks by corporations, so that the net amount of new shares being put onto the market for direct capital investment has been negative. And what new share issues there have been have been minuscule compared to overall turnover.

Harper was a former president of the National Citizens Coalition the original founder of which was the president of a large pharmaceutical company. He was kicked out of the Mulroney cabinet because he wanted to cancel tax breaks for seniors. He was kicked out of the old Reform party inner sanctum because he was to extreme. He advocates cutting spending, supports the recent healthcare accord which enshrines chronic underfunding, promotes private healthcare solutions in violation of the Canada Health Act and is extreme on a vast array of social policy matters from same sex marriage to women's right to choose. He exploits the Holly Jones murder for political ends but opposes gun control.

Moreover he lies about his committment to the War in Iraq. he will eagerly spend billions on Star Wars and trhe weaponization of space and sees himself as a first class toady of US hegemony.

(...hmm that rhymes doesn't it?)

Anyway 20 years ago conservatives were advocating positions much more to the left for similar political reasons.

My belief is that international capital elects right wing governments to criple the social justice agenda and to preserve the paper economy. How they can hoodwink people into believing that neoliberal economics is about reducing deficits is beyond me.

Look at the two most consetrvative governments in the recent history of the US, Reagan and Bush II. Both racked up the largest deficits in history. they went to a wartime economy with no substantive enemy. How in God's name is a missle defence going to stop terrorism. What country uin their right mind would launch a nuke at the US since the advent of the bomb by the US?

quote:

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Originally posted by thwap:

It seems to me that the amounts of money scooped out of the real economy and sent into the cyber-space perpetual motion machine of the stock and bond markets is tangible evidence of the resiliency of our society. The gov't might as well have taken that money and flushed it downthe toilet.

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I already explained how equity financing can channel savings into investment. Another way that savings is used to finance investment is by bond financing.

Remember what a bond is: a promise to pay a certain amount of money at a certain point of time in the future to the owner of the bond. An IOU note, if you will. And it's transferable, so if the lender decides that he wants his money back, he can just sell the bond (at a mutually-agreed price) instead of calling in the loan. When the time comes, the issuer of the bond repays the new bond-holder.

So buying a bond is the exact same thing as lending. Buying a Canada Savings Bond is lending to the government. Buying a bond issued by the private sector is the same thing as loaning money to a firm.

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Originally posted by DonnyBGood:
I don't think you can escape the fact those that want all social services privatised are doing this and adopting this agenda for the most part for political reasons.

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I agree. The experiment in privatised economy was a dismal failure in Chile during what was a nine year economic experiment in Chile. State industries, banks, the national pension plan and social welfare were deregulated/privatised by the Chicago School of Economics graduates in Pinochet's government at the time. High unemployment became a permanent feature of the economy while deficits soared. They jacked up interest rates to entice foreign bond sales as the perfect experiment in fully deregulated economy. But it flopped. Only five other Latin American economies performed worse during the same time period. But this doesn't stop the IMF-WB from foisting their unproven, deeply flawed economic austerity reforms on 3rd world countries as condtions for aid.

The American economy was built on Keynesianism. High technology has driven their economy since the end of WWII. Since about the 1970's, there has been a slow, concerted effort to convert their high tech model to one that is oriented toward financial and services oriented economy. The Chilean's more or less did this same thing by introducing value added services to banking, financing, insurance etc in an attempt to replace the dependency on primary industries like mining and agricultural exports. The end result was a smaller per capita GDP by about $600 per person than they achieved under two years of Allende's socialists. The Chicago plan was scrapped by the dictator himself. Perhaps Augusto Pinochet had more of a social conscience than did the conservative economists who pauperized the nation.

[ 20 June 2004: Message edited by: Fidel ]

Is this that? …..

“Equity financing is done all the time: a block of new shares is created and sold. The new money is used to finance an investment project. This dilutes the existing shareholders' stakes, but the gain is the profits from the now-feasible investment project.”

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If a firm sells a bond and if they don't use the money to cover current expenses, that money will show up as retained earnings.

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[ 20 June 2004: Message edited by: abnormal ]

profits = revenues - expenses

retained earnings = profits - dividends paid to shareholders

The GST was supposed to do much the same thing, (I think.)

If so, I'm glad you brought it up. Pilfering from the EI fund, and sticking it to Canadians with regressive sales taxes are now two examples of the transfer of wealth from labour to capital carried out under the logic of creating huge gov't debts and then paying them off.

People pay EI premiums and then they don't receive EI benefits because Martin is paying off bondholders and giving them tax-cuts.

private [ei prem.] -public [general revenues]- private [bond holders].

same for the gst.

private [personal consumption] -public [general revenues] - private [bond holders]

Then there's the tax cuts that have really only had a net benefit for wealthier Canadians and corporations, while basic [but reduced] gov't services for the majority are sustained by what's left of these EI premiums and gst taxes.

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So what do bond issuers do with the proceeds from the bond sale? Governments use it to finance current expenditures. Firms use it to finance investment projects.

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Originally posted by Oliver Cromwell:
Taxes are a transfer from the private to the public sector, not from labour to capital.

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Who tends to benefit the most from the tax system is most certainly definable, and most certainly can be categorized as "labor" or "capital".

For example, in general labor benefits the most when the income-tax system is weighted progressively, there is no differential treatment of interest or capital gains income, and sales taxes are reasonably low.

Capital, however, benefits when there is differential treatment of income according to source with the worst given to that of labor income. Further, it benefits by manipulations of the corporate income-tax system designed to either favor particular companies, or a particular sector, or even just to give corporations access to means of reducing their tax which the individual has no comparable access. I most certainly cannot deduct my day-to-day expenses in the way that corporations can in order to reduce their tax bill.

Furthermore, payroll taxes can also change who benefits. You will notice that the corporate sector routinely calls for lower EI premiums and the labor sector tends to call for loosening the EI requirements. Since the payroll tax is taken from both employer and employee, cuts in the payroll tax simply lower costs for employers (i.e. capital) without necessarily any benefit accruing to employees (i.e. labor) in the form of higher wages other than that generated by the EI reduction, since unemployed workers depend on EI and with an approximately 40% eligibility rate instead of 85% as recently as 1988, it is clear that those rules were designed to create a surplus in the EI account, so that instead of attacking the budget deficit by taxing those who could pay most readily, Martin chose to benefit his buddies in the corporate and high income areas by sticking it to labor in the form of EI premiums which they paid but to which they no longer had virtually guaranteed access if they became unemployed.

I should take a sidebar and point out that insurance is supposed to only not pay out in the event there has been fraud or misrepresentation made as to the circumstances under which the insurance should be paid out. Insurance is, theoretically, not designed to unreasonably limit access to the insurance payments in the event of a bona fide loss or accident which triggers the insurance payout. It would be like ICBC refusing to cover me for a car accident that was entirely not my fault.

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As spake by jrootham:
If you look at the details of the report from StatsCan referred to above, you will find a big chunk of it goes to pay for our attack on inflation. The use of high interest rates (read high unemployment rates) to control inflation is an evil policy.

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While I agree with you that the high interest rates of the late 1970s and early 1980s have certainly driven up the national debt, it should be noted that the long bonds issued back then have been coming to maturity in the last few years, and coupled with the low (nominal) interest rates prevailing compared to that era, this lucky accident also means that the government has, in effect, replaced its high cost debt with lower cost debt, defusing the then-ticking time bomb and putting the government in an excellent position to reduce its interest burden.

quote:

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Originally posted by Oliver Cromwell:
I don't think anyone would claim that the IMF never makes mistakes. But we'd all be very much interested in what policies the IMF should be following. And I, for one, would be very interested in hearing a rigourous argument that explains exactly why those alternative policies would be an improvement.
[ 20 June 2004: Message edited by: Oliver Cromwell ]

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I'm not the economist here, but maybe I agree with Joe Stiglitz in that the first step would be to scrap the IMF and its SAP's for third world nations because it's not working. The African experiment in free market water isn't working there as it isn't around the world. It seems that the American's want the 3rd world to prove Smithian laissez faire works, even though the Yanks abandoned it themselves after a 30 or so year run leading up to the 1930's. And I tend to agree because, where would the American's themselves be now had they allowed Smithian laissez faire and low wage economies to continue post-1930's ?. Would we be speaking German right now ?.

Stiglitz uses privatised water distribution as an example because it's subsidized in North America and yet Washington/IMF expect the poorest citizens on earth to cough up free market prices for water. Some African's are having to feed water metres with coins, and it's creating great hardship among people who just don't have an income in what are the poorest nations. Private enterprise'rs there are taking advantage of a bad situation as they have in Bolivia, Argentina, Atlanta, Moncton, Paris and more cities.

The IMF suggested to Korea that they should get rid of their IC chip industry. But the Korean chip industry is now thought to have accelerated Korea's recovery from the Asian crisis. Both Stiglitz and James Wolfensohn have praised Cuba and China for their strong social statistics like infant mortality, literacy education and health care. But China's Yuan is not traded on currency exchanges and demands 51% controlling interest in any manufacturing or R&D that locates there to take advantage of the skilled and literate work force. It seems that countries not tied to IMF-WB programs are doing better than those that do.
So much for text book economics from the IMF.

Oliver Cromwell, where do you think the third world is going wrong with regard to IMF-WB SAP's ?. Or should the IMF/WB simply blame the victims of their own economic advice throughout Africa and Latin America ?.

What do you think of the alleged global shift from capitalism to "people-ism" or peoplism ?.

And I didn't realize you were an economics professor. Scuse moi.

[ 21 June 2004: Message edited by: Fidel ]

quote:

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Originally posted by Oliver Cromwell:
I'm somewhat shaky when it comes to accounting, but I thought that

profits = revenues - expenses

retained earnings = profits - dividends paid to shareholders

A sale of a bond generates revenue. If this revenue isn't used to pay expenses or to pay dividends, it will show up as retained earnings.

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I refuse to be impressed with Martin's achievement. He slashed spending, ripped-off the provinces, and ripped-off EI contributors. Then, when he had surpluses, he gave the rich tax cuts.
I could balance my budget if I could make somebody else pay my rent and buy my groceries.
My pinko economic sources tell me that 85% of the reduction in Canada's debt to gdp ratio has come from economic growth, not from siphoning money out of the real economy and transferring it to the wealthy.

"I fear that Harper is going to get in and put the government in a fiscal position where it cannot pay any more towards the debt. And of course, this money will go to the wealthy."

quote:

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Originally posted by DrCOnway:
This makes it all the more criminal that Martin has chosen to use the displacement of interest burden to give tax cuts to the wealthiest sector of society by eliminating the 3% and 5% surtaxes and choosing to give continuing tax cuts to the corporate sector such that the average tax rate now faced by corporations in Canada is 21% compared to 35% in the USA.

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Fabulous. According to the Economist, those lower general tax rates on capital are in place in Europe, too. And so Canada is kinder to capital than Uncle Sam, so where's the beef?. Why isn't Canada's economy over heating with all of these 'capital-friendly' policies ?.

But since the world wide failure of laissez faire capitalism in 1929, we've adopted Keynesian economics. We gave up on moribund economies where a dollar a day was the average wage, and few people could afford to buy much. Keynes showed us the multiplier effect and to spend in bad times. Pay down debts in good times. The vast majority of us have to shoulder debt in order to live. Nixon said, "we're all Keynesian's now." Even Thatcher and Reagan were alleged to have implemented Keynesianism in some form. But nothing could be further from the truth.

We should be as prosperous as socialist Singaporan's earning the fifth highest incomes in the world. Or as affluent as socialist Norway, a net creditor nation. Foreign owned companies have extracted our mineral, oil, and timber wealth for decades. And we've paid them to do it, too. Why does every Libyan own either their own apartment or home as a direct result of the oil profits in what is otherwise a desert country?. Why does socialist Finland rate as the most economically competitive economy in 2003, just ahead of the Yanks and several Euro-social democracies while Canada is held back ?. What business do we have running the debts that we do when Canada's child and native poverty rates are second only to the U.S.A and Mexico's in a comparison of rich nations?. Haiti, the West Bank, Gaza, Honduras, Belize and El Salvador have some of the lowest external debts in the world but are poor countries. And they have rock bottom rates of taxation and extremely low rates of unionized work force. Low debt hasn't helped them and they have some very wealthy people living in their midst. Mexico's billionaire population edged upward during times of economic chaos and poor debt management. The United States, Brazil and Canada have the highest external debt loads in the world, and yet we spend the least of our GDP's on social democracy in comparison with other rich nations who roll more of their annual revenues into social programs.

Private citizens shoulder debts, and so why have successive Liberal and Conservative governments in Canada having such a difficult time managing the national debt ?. Canadian's saving rates are abysmal, and so is the record of the federal government on national debt. Even so, the debt is not a problem. No one is going to stop loaning us money. The problem is with who has been managing the purse strings, according to many opinions.

Canada could be doing a lot better than we have. It's time for a regime change here as well as in the United States where debt really is a problem under conservative politics and spending on military while only 14% of their annual GDP is invested in social democracy.

[ 22 June 2004: Message edited by: Fidel ]

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Originally posted by lonecat:
We have lived in an era of unusually low interest rates, all in the name of fighting inflation.

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Hang on.
Interest rates aren't lowered in the name of fighting inflation, but raised. Whether it's a good idea is another question, but that's current wisdom at central banks--if the economy starts to go too fast and inflation threatens, *raise* interest rates to choke off growth and raise unemployment, thus curbing inflation. One plausible response of a social democratic government more interested in high employment than in inflation fighting would be to tell the central bank "don't do that or we'll get a new central banker".

Inflation itself, of course, would tend to reduce the value of debts including the national one (among other effects).

quote:

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Originally posted by Rufus Polson:

Interest rates aren't lowered in the name of fighting inflation, but raised.

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Similarly, any attempt to use monetary policy to reduce inflation will end up with a short-lived (12 to 18-month) jump in employment - and a permanent increase in inflation and interest rates.

[ 22 June 2004: Message edited by: Oliver Cromwell ]

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In the short run (that is, 12-18 months) yes, but as inflation comes down, interest rates come down as well. Monetary policy in Canada has not changed since John Crow. We have low interest rates because we have low inflation.

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Similarly, any attempt to use monetary policy to reduce inflation will end up with a short-lived (12 to 18-month) jump in employment - and a permanent increase in inflation and interest rates.

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Marginal productivity investments depend on the ratio of the cost of capital to the cost of labour. Attacking inflation by raising one and lowering the other pretty much guarantees a hit on productivity. Which, of course, leads to higher prices (or depressed wages) in the future.

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This is dichotomist thinking. Jim Stanford's book was excellent (Paper Boom) but it didn't hallenege the assumption that there is really a "paper economy". What there is is social control by a ruling class. The financial economy is a pseudoscientific rationalization of economics in the abstract.

Well, the "economy" even within these social relations is a pretty big enchilada that needs to be understood in some detail.

Also, I think you can get a pretty good idea of the artificiality of the paper economy from Stanford's book.

I wonder what the success of Keynsian fiscal policies would've been for fighting inflation? Were they ever tried?

Not that it would have been a real solution. High and persistent inflation is due to monetary policy.

[ 27 June 2004: Message edited by: Oliver Cromwell ]

But why wouldn't it have worked? It certainly wasn't tried in Canada (see rbt. campbell's Grand Illusions.

As numerous critics have pointed out over the years, gov'ts and monetary authorities don't often "print money" just on a lark. There are reasons (not always inspired by "irresponsible" leftists) why inflationary deficits become public policy.

Friedman's "alway's and everywhere a monetary phenomenon" statement is kinda silly on that level. It's akin to: "Death is always and everywhere caused by the stopping of the heart and the brain's shutting down." Identifying what led to that point seems to be the nub, not the obvious banality.

Friedman said that going into the myriad reasons for inflationary monetary expansion wasn't his goal, and is such an open-ended question as to be useless, but if that's the case then his "explanation" is also useless.

Finally, you say that Keynesian fiscal policy wouldn't produce lasting results, but that also seems to be the case for monetarism. I remember the stupid headlines after John Crow's pyrrhic victory over inflation: "Inflation six feet under: -- for now."

So for example they take over the economic leavers of government and empower some high priests in the medial to sspread taboos and warnings abouit the things elected governments can and should do.

The illusion is that the "free market" is an autonomous "invisible hand" that will resolve all human economic issues if only let to do its work. This is a completely self sering fantasy. Polanyi has demonstrated that there is no example anywhere in history in the world where this works. On the other hand there is much more eveidence that a soviet styled command economy is more efficient - just go to any Home Depot if you don't believe me!

quote:

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Originally posted by Fidel:
It is a scare story. Conservatives and Liberals(conservative-lite)are always harping on about the national debt, which they've racked up themselves over decades.

With these two old line parties exchanging majority governments every four and eight years

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In a social activity that has in reality no bottom line we artificially impose one at the cost to the benefits of being able to direct human activity freely and without constraint. George Bush can beat the drum for a war against a nonexistent enemy and run up a 600 billion dollar deficit simply because war and munitions are sanctified by the high priests of capital as noble and worthwhile enterprises. The same amount for healthcare, which would of course, result in the elimination of the entire neoliberal voting public by converting them to enlightened socialist values, is deemed "taboo" by the same self serving cogneceti.

[ 28 June 2004: Message edited by: DonnyBGood ]

And earlier in this thread i was waxing philosophically about what would've happened if our gov'ts had actually used the money gone to bond holders and spent it on services for reg'lar folks. tens of billions of dollars annually, ... gone.

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and these gov't debts have always been a nice, secure source of income for some people, with the investment killing high interest rates coming before the huge deficits, not vice-versa

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This point was brought out in McQuaig's behind closed doors, I believe. Statscan showed that the growth of the deficit under the Mulroney government was as a result of interest rates, not program spending. But if you talk to a neoliberal they view interest rate increases as essential and that if they result in deficits then programs, not interest rates, should be cut.

With the election over it will be interesting to see if there has been any dent made in the media gridlock on this issue.

Canadians voted 45% in favour of the two conservative parties that have been espousing this wrong thinking for at least two decades.

The masses are wrong and stupid beyond belief on these issues. Surely this is not the best a democracy (such as ours is) can do?

[ 06 July 2004: Message edited by: Boinker ]