Monday, May 10, 2010

Canadian Government Debt - Keep it in perspective

In light of last week's near market debacle over the mounting Greek debt issue, I thought I'd try to put that crisis into perspective by looking at Canada's federal and provincial debt and compare those numbers to both the United States and Greece.

Here are the numbers (debt in $millions):

Province Population Net Debt (09-10) % of GDP
NL 508,900 $8,457 36.9%
NB 749,500 $8,354 30.2%
NS 938,200 $13,319 39.4%
PE 141,000 $1,522 32.6%
PQ 7,828,900 $142,847 47.5%
ON 13,069,200 $193,226 34.1%
MN 1,222,000 $12,253 24.4%
SK 1,030,100 $4,145 (gross) 6.3%
AB 3,687,700 none N/A
BC 4,455,200 $29,039 15.4%

Canada 33,930,800 $517,500 33.9%

Canadian Government debt is projected to reach $622.1 billion by 2014 - 2015. Ontario's net debt is projected to reach $319 billion by 2016 - 2017. Ontario has already had a debt downgrade back in October 2009 after their deficit projections reached a record level; Standard and Poor's Rating Services lowered their debt rating from AA to AA minus. It is also interested to note that many of the provinces pushed the date for balancing their budgets out by 1 to 2 years in their most recent budgets compared to their budgets of a year ago. In March 2009, Ontario projected a balanced budget by 2015 - 2016; this changed to 2017 - 2018 in March 2010. In February 2009, the British Columbia government projected a balanced budget by 2011 - 2012; by March 2010, this had changed to 2013 - 2014. In January 2009, the federal government was projecting a surplus of $5.5 billion in 2013 - 2014; in March 2010, the federal government projected a return to balance one year later in 2014 -2015.

Let's compare Canada's debt to that of the United States. The United States Treasury has this great website where you can get all sorts of information about their debt. It really is a treasure trove of information.

Here's a screen cap of the debt numbers current to April 30th, 2010:

The total debt is currently $12.95 trillion U.S. Amazingly, the debt numbers are updated every morning at 11:30 am Eastern Time. From the U.S. National Debt Clock, each citizen's share of the National Debt is $41,938.19 at 6:00pm ET Sunday May 9th, 2010. For comparison's sake, Canada's per capita federal debt is $15,250 assuming a population of 33,930,800. The United States public debt was 54.6% of GDP in 2009; by comparison, Canada's public debt was 33.9% of GDP. The United States Treasury records that interest payments on their debt has totalled $224 billion in the first 7 months of this year; by the end of this fiscal year, the interest payments on their debt alone will approach Canada's total public debt.

Fortunately, the U.S. Treasury has given American citizens a way to help pay down the accumulated debt. A website called has been setup to help do just that. A citizen can go directly to the website, enter their personal information and chose to pay by cheque or credit card. Their "gift" will be deposited to the account "Gifts to Reduce the Public Debt".

Here's a screen cap of the website:

I'm not sure if it's just me, but I think it's rather ironic that you can donate to pay down debt using a credit card! Maybe someone should suggest a voluntary citizen pay down of Canada's debt to Jim Flaherty...or not.

Now let's go to Greece. Their total debt is $405.7 billion U.S. The Greek GDP was estimated at $343 billion in 2008 resulting in a debt to GDP ratio of 118%. In July 2009, the population of Greece was estimated to be 10,737,000 people. This results in a per capita debt of $37,785 which is actually lower than the United States per capita debt.

Okay, enough with the numbers already.

Quite honestly, while I don't like seeing the Canadian debt numbers growing as they are during the downturn of the past 18 months, they look positively wonderful compared to both the United States and Greece on both a debt to GDP and debt per capita framework.

To summarize, if I were looking to purchase Canadian provincial bonds, strips or coupons, I would pick Alberta first, then Saskatchwan. Alberta bonds can be difficult to purchase since there is a very small quantity. Saskatchewan has a diversified economy and have the strength of world-leading uranium and potash deposits and a good portfolio of gas and oil resources. They have been financially cautious for many years, maintaining a low debt level and it is now paying off. I still like Canada bonds; if they tank, we're all in deep sh$t long before that. My only concern is that if we are experiencing a "W-shaped" recovery, all projections from provincial and federal finance ministers will not be worth the paper they are written on and a return to balanced budgets will be pushed further into the future adding to debt load and increasing debt to GDP ratios as the economy contracts.

...or just buy physical gold and bury it in the garden.

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