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All Financial Institutions have a responsibility to alert customers and shareholders/members on the impending risks of increasing debt which has grown worldwide during this low interest era. The size and serviceability of debt are impacted by customers' cash flow and increasing cost variables such as interest. Additionally there maybe known and unknown contingencies which can quickly squeeze peoples' abilities to handle debt obligations. One major contingency is Governments' debt at all levels, a subject we, as an industry, need to highlight more to customers and the public.

So in most countries there are national/federal, state/provincial and municipal debts. Lets look at each one briefly in reverse order.

At this time municipalities are assess budgets going into a precarious, potential recessionary year after years of buoyant growth in property assessments and tax rates. Property assessments based on market values have skyrocketed which implicitly increases tax revenues to municipalities therefore industries such as farming have felt the additional cash flow pinch. But to see mill rate increases on top of that creates a double whammy as these governments create an over spending psychology which has to be reversed and the load on consumers and businesses softened. Obviously as we talk about the next two government levels it will be clear that transfers and grants to municipalities will have to be cut so local priority choices have to be made and costs re-examined.

If we go to the Provinces(States) we will find that debt loads have grown exponentially since the turn of the century with attractive low interest impacts. Comparatively, California has state debt loads at bankruptcy levels but on a per capita basis they are less than in Ontario! With recessionary pressures, interest rates are bound to go up on that billions of debt dollars. With those large amounts the incremental interest expenses will be in the millions which means program cuts since raising taxes would kill more jobs and hence tax revenues.

The federal level is not much better as we hear that last year the government added almost $7000 per capita to the debt. With an election coming up you can expect more spending which we can't afford as a country and individuals. If you look at debt sensitivities on governments' debt as we do on customers leverage you quickly see that consumers and businesses are entering a burdensome economic and debt phase which will negatively impact all taxpayers.

Pat Palmer | Tuesday, January 22, 2019 | Trackbacks (0) | Permalink

 


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