Growing Fears About Canada’s Private Sector Financial Deficit – A Key Indicator Of Crisis Risk

The U.S., Eurozone, and Japan all have substantial private sector surpluses. But in Canada, it’s a very different story.

The are growing fears about Canada’s private-sector financial deficit.

As noted by Bloomberg, “The private-sector financial balance — an economy’s total income minus the spending of all households and businesses — has proven more powerful in predicting crises than the current-account balance, Goldman analysts led by Jan Hatzius, the bank’s global head of economics, wrote in an Aug. 23 research note.”

The analysts said “The good news is that the biggest DM economies — the U.S., the Euro area, and Japan — are all running healthy private sector surpluses. The not-so-good news is that some of the smaller DM economies — especially Canada and the U.K. — are running sizable deficits and appear vulnerable to higher interest rates and weaker asset markets.”

This private sector deficit makes Canada vulnerable, because it means “households and firms can’t finance their spending with current income and rely on net borrowing or asset sales. That makes growth and financial stability more vulnerable in an environment of rising rates or market declines.”

Disturbingly, the analysts say a large private-sector deficit is a key indicator of a crisis, because it makes an economy more vulnerable if the market goes down, or interest rates rise.

As I’ve said before, this is no surprise. The combination of allowing massive amounts of foreign money to enter our housing sector driving up prices beyond affordability for many Canadians, along with restrictions on where homes can be built (which is meant to reduce ‘sprawl’ but ends up restricting supply), and policies that take more money out of our pockets and make things more expensive (carbon tax), have the predictable impact of making people rely more on debt to maintain their standard of living.

And those same policies are terrible for Canadian businesses as well.

More debt = more vulnerability, and that’s not even including the rising threat from Canada’s evaporated NAFTA negotiating leverage and the billions in investment fleeing our country under the Trudeau government.

Spencer Fernando

***
Unlike the CBC, people support my writing voluntarily. If you would like to support SpencerFernando.com, you can help contribute through PayPal at the button below:



0 0 vote
Article Rating
Subscribe
Notify of
guest
5 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Don Taylor

lets face it Turdeau’s policies have been a disaster for Canada!

Del

Would it be more realistic and understandable to the average Canadian if we had Net Domestic Product rather than GDP? As it is, it seems the GDP is financed with debt which gives a false figure.

NancyW

Lucky for us the Rt.Hon. Stephen Harper was really making Canada strong again, and was very good at economics right though a world recession we did fine and then he was getting us growing in more ways than one all approved pipeline to be done by the private sector, the actual number of Canadians working was higher, our economy was carrying us through the oil prices lowering, he had enough money set aside to help the laid off workers till the prices came up again and jobs were back, but Trudeau got falsely elected and spent all the extra and… Read more »

Ed Peebles

BUDGET !!!

( That says it all.)
Ed Peebles

Brian Dougan

“DM” = Developed Markets. “EM”= Emerging Markets.