Canada debt spotlight

Sorry I cannot follow your math or methodology -- please explain this in detail before doing all this work. We need to know what youa re trying to get from dividing these numbers as you are.

It sounds interesting and I want to understand it.

Thanks

I only found the tables 2013-2016 so cannot follow your figures right through.

First the figure 1,972 for 2016 is not the total households debt but the total households -- which is why you divide the debt figures by this number to get the level of indebtedness per household.

Secondly these figures are deceiving if you do not use some kind of constant numbers -- you have two clear chocies -- first to adjust for inflation or second to adjust for earnings. Stats Canada offers both. This should be done before comparing the figures for one year with another.

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

SeekingAPoliticalHome wrote:

Sean in Ottawa wrote:

I only found the tables 2013-2016 so cannot follow your figures right through.

 

First the figure 1,972 for 2016 is not the total households debt but the total households -- which is why you divide the debt figures by this number to get the level of indebtedness per household.

Secondly these figures are deceiving if you do not use some kind of constant numbers -- you have two clear chocies -- first to adjust for inflation or second to adjust for earnings. Stats Canada offers both. This should be done before comparing the figures for one year with another.

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

 

First part I guess I will give it more try.

We are talking about debt and credit, why would you try measure inflation of debt?  Debt is fixed, it grows when people borrow and goes down people pay it off.  Stats Cans provide some inflation corrected data like GDP but why or how would measure infaltion of debt?

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

Can you expand on this?

First the purpose of debt levels is the proportion they are and the meaning of what a dollar is. It makes sense, therefore, to compare debt levels from one period to another after adjusting to relative dollars. As things increase you would expect debt levels in dollar terms to as well.

The Rise of the American Bondholding Class

The history of class conflict, power and inequality in the United States has always been intimately bound up with the public debt. Already during the War of Independence (1775-‘83), revolutionary forces accumulated debts of $54 million,

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Since the early 1980s, and especially since the onset of the global financial crisis, there has been a rapid concentration in domestic ownership of the public debt. Specifically, the stunning increase in concentration has taken place in favor of the now-infamous top 1 percent of US households and the top 2,500 US financial corporations. Distribution of the public debt is tightly correlated with the distribution of wealth more generally. In other words, when the share of wealth owned by the top 1 percent and large corporations increases or decreases, so too does their share of the public debt.

Figure 1 illustrates this dynamic. What is most remarkable is the massive increase in concentration of the public debt that has taken place since the onset of the crisis. From 38 percent in 2007, the top percentile’s share the public debt has climbed to a shocking and unprecedented 56 percent in 2013, the last year for which data are currently available.

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Overall, I argue that the spectacular increases in the public debt since the early 1980s have served the interests of a bondholding class of dominant owners at the apex of the wealth and income hierarchy. How do we explain these massive increases in public debt? And how exactly do we explain the connection between growing inequality and rising public indebtedness? Answers to these questions can be found in Wolfgang Streeck’s concept of the “debt state.”

The Making of a Modern “Debt State”

In his book Buying Time: The Delayed Crisis of Democratic Capitalism (Verso), Streeck traces a shift in the advanced capitalist countries from a “tax state” to a “debt state.” Under the post-war tax state, gradual increases in government expenditures were matched by tax revenues, which resulted in falling levels of public indebtedness. With the emergence of the debt state from the 1970s onward, government expenditures have continued to grow while tax revenues have stagnated, resulting in escalating levels of public indebtedness.

The US is, in many ways, the ultimate manifestation of the debt state, where stagnating federal tax revenues have been the primary driver of increases in the public debt. Tax stagnation is itself the product of a successful tax revolt on the part of powerful elites. What this means is that tax revenues constitute a dwindling portion of national income, and also that the bondholding class is now paying less and less taxes as a percentage of its total income.

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In essence, what the transition from the tax state to a debt state means is that the Federal Government chooses to borrow from the bondholding class rather than taxing it. And in deciding to furnish wealthy households and large corporations with risk-free assets instead of levying taxes on their incomes, the debt state reinforces the existing pattern of inequality. This raises further questions about the long-term stability of current arrangements. The debt state is likely to persist into the foreseeable future, and the reason has to do in large part with the role played by foreign ownership of the public debt.
A Powerful Foreign Bond

Since the early 1970s, there has been a rapid globalization of the US Treasury securities market. In the post-war period, official and private foreign investors consistently owned less than 5 percent of the US public debt. The foreign share has climbed steadily ever since and at the present time stands at roughly 50 percent.

This seemingly insatiable foreign appetite for US Treasury securities means cheaper credit for the US government, which deflects challenges to domestic owners of the public debt at the top of the wealth and income hierarchy. In the case of the Federal Government, cheap credit relieves pressures for socially disruptive spending cuts, as well as increased taxation, which would fall more heavily on elites. Access to cheap credit also dampens resentment toward those same elites by allowing low- and middle-income Americans to maintain consumption habits in the face of decades-long wage stagnation.

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Consequences for Democracy
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The linkages that Morgenthau Jr. draws between the public debt, power and democracy have obvious intuitive appeal. And Streeck’s concept of the debt state is once again helpful in exploring the consequences of growing inequities in ownership of the public debt. In Buying Time, Streeck argues that the emergence and consolidation of the debt state has had dire consequences for democratic representation in advanced capitalist countries. Specifically, he asserts that under the debt state governments have come to prioritize the interests of owners of the public debt, the Marktvolk, over the general citizenry, or Staatsvolk.

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Concentrated ownership does not necessarily give owners of the public debt direct power over the political process. But it is clear that there has been a transformation in policy in recent years; one that provides an ideological climate that privileges the interests of the bondholding class. Inequality in ownership of the public debt and inequality in representation within government policy are really two sides of the same coin. In this sense, the debt state not only reinforces wealth and income inequality, but it also contributes to the broader erosion of democracy.

From the posted article by Sandy Brian Hager:

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The problem I highlight in the book is not a large public debt. As Abba Lerner first demonstrated in the 1940s, the outstanding level of public indebtedness is inconsequential so long as it is being accumulated as part of a macroeconomic strategy to achieve non-inflationary full employment. In fact, for a monetarily sovereign entity like the US Federal Government, which issues debt in a currency it fully controls, bankruptcy is never really an issue because the Federal Reserve can purchase government bonds when the private sector does not want them.

Ah yes, that old 'quantative easing' strategy. Sorry Sandy, but you'd  better go back to school for a few years.

I could write a long essay on the failings of this article, not least of which is that Hager doesn't specify what he means by 'the 1%'. Is it the 1% of income earners, or the 1% of wealth owners? Big difference between those two groups, and the source of endless confusion, that was very ably used to detour the 99% movement is the US.

The real question is, however, can quantative easing 'ease' anything? To a certain extent, yes, provided it's in a closed system. The government can print money, hand it out to the peasants, and everyone is happy. There's a huge increase in government indebtedness, but who cares? Yes, prices go up, but as long as the printing press is working, it doesn't matter.

But what happens when the money so generated is used to buy products from outside the country? Those people who accepted the 'quantative' dollars don't accept them as quantative dollars, they accept them as real dollars.

Now, as long as the owner of these quantative dollars can spend them as real dollars anywhere in the world, no problem. At some point, though, other countries may decide they don't want to accept those dollars as real money, and that's when the fun starts. The owner of the quantative dollars then have to decide what they're going to do with that money, and the very natural solution is to use them to purchase in their land of origin.

In the case of the USA and China, say, the government of China uses the quantative dollars to buy up real property in the USA. That is the only way they can protect the value of their quantative dollars.

So instead of borrowing the dollars and increasing the debt, the government gradually sells off assets within the state. Just think of a rancher who doesn't want to, or can't, borrow money from the bank, so instead borrows from friends and relatives, who then start chippping away at the property itself in order to protect their investment. 

For the time being it's not a problem. The assets of the USA are very large, so there's a lot of real estate to sell. But it's only a matter of time, and the more money 'printed', the sooner the collector will come to call.

And honestly, how can anyone write a whole article on government debt without once mentioning credit derivatives? Sorry, but that's inexcusable. And just for Hager's information, when you borrow money, you'll find it's a lot easier to borrow from the wealthy than the poor. 

..i agree geoff.

..the solution to the debt state as stated above is very pertinent to our times. it was just this passed election the debt debate began. the solution presented, i endorse and prefer it to what i understand of what the ndp proposed when mulcair announced a deficit payment priority. this is an important distinction. this represents a better solution in the now rather than believing that our rewards are just down the road if we can just pay off the debt.

The real problem, then, is a large unequally distributed public debt. This distinction is absolutely crucial. From an emancipatory point of view, the point is not to try to eliminate or even reduce the public debt, but to find ways to tackle the inequality that underpins the public finances. As mentioned earlier, the emergence and consolidation of the debt state was driven primarily by tax stagnation and declining tax progressivity. The debt state, in other words, has come into being because the Federal Government has come to rely on borrowing from the bondholding class instead of taxing it. Restoring progressivity to the federal tax system, by increasing tax rates on wealthy households and large corporations, would therefore go a long way in addressing the growing inequalities in ownership of the public debt and in the ownership of wealth and income more generally.