Canadian Personal Finance Blog

Archive for the ‘deficit’ Category

Parity Between US Buck and Loonie?

That is what the CIBC and their analyst Zafar Bhatti thinks. Same reasons as previous Loonie flights but still worth noting:

• Commodity prices, and Canada being the Northern Resource Kingdom to the U.S. (and a lot of the world)
• Potential for higher interest rates in Canada, thus strengthening the dollar (remember targets are June)
• Canada is a good investment in terms of our credit balance. Yes our Government is in debt, but nothing like the Americans, and most of our debt is held by Canadians themselves (i.e. Savings Bonds), so we are a good risk (maybe we can get a Amex Platinum for Nations?)

An excellent quote from the CIBC is:

…This puts the Bank of Canada between a rock and a hard place, if they signal rates are going to rise, the Canadian dollar will make a run for parity or stronger…

A blip over the summer with a subsiding in the fall might be a good thing for Canadian consumers, maybe.

Big Deal!

Well, actually it can be a very big deal if the Canadian dollar gets really strong, it will cause Canadian products to be too expensive for your Yankee cousins (whether the Canadian dollar strengthens against the Chinese currency and the Euro remains to be seen). Many, many small Canadian firms rely on trade with the U.S. and a soaring Loonie will cause that market to dry up, unless the manufacturers slash prices in reaction to this rise.

Reverse cross border shopping will start again. Many things are cheaper in the U.S. if you simply look at the price tag, and if the Canadian Dollar can buy the same as a U.S. dollar, why shop in Canada? For someone in Ottawa you are 55 minutes from Ogdensburg, and not that far from other U.S. towns and cities that will see an influx of “Frost Back” Canadians with their Beaver Bucks in hand. This will help these border towns a great deal, but will have the reverse effect on Canadian border towns.

Is this a permanent thing? I have no bloody idea, but I am now looking at US Index funds (and ETF’s) thinking that if the Canadian dollar goes any higher am I getting a bargain? As is pointed out in the CIBC report, if American Inflation explodes (say because their Government is printing money as fast as they can spend it) and the U.S. Central Bank has to raise interest rates, then this will simply be a “bulge” which will subside quickly and the Canadian Dollar may slide back to where it has been (of course if Canadian Inflation explodes in reaction to American Inflation, the two factors may cancel each other out).

I would encourage you to read over this very interesting report and form your own ideas and opinions about where we are going from here (economically).

Don’t we live in interesting times?

The Budget announced on Thursday did one or two good things, announced some ominous things (for me) and didn’t do much else.

Good: RRSP/RSP to RDSP

The one good thing is that estates of deceased parents and grandparents can transfer money tax-free to a child or grandchild’s RDSP, which helps those with disabled kids, so a very good thing.  The RDSP program will also allow for Carry Forward of the Disability Bonds for up to 10 years, so those who may not have enough to put in one year ,can make it up in the next year (seems a logical step in the program).

OK: Options Victims Saved?

There was a statement about the lucky folks being taxed for money they didn’t make on Stock Options, but the exact logic and methodology is not yet completely understood (as can be seen from this post from Michael James (an admitted victim)). I never had to worry about options ever being worth anything, so I think this doesn’t affect me in any way.

Interesting: Government Cost Controls

This one is directly in my new backyard, with a statement about budget freezes in the public service. What will this mean? Again, not exactly clear, but spending seems to have stopped for now, which might be a good thing for taxpayers (not for us civil servants). Will this mean lay-offs? My guess would be maybe, but a lot of attrition losses due to retirement not being replaced, might be the more logical choice. Will this cut down on bureaucracy and mismanagement? Did it do much in Nortel? Again, the answer is maybe, but I doubt it. Whatever bureaucracy that is there, will stay there, and anybody mis-managing things, are most likely going to stay where they are too, but we shall see.

No mention of the Public Service pension plan, but many ominous statements about it coming from the “side sources” of the government, so another area to watch closely.

Why Not Back to the Past?

So how is it that 4 years ago we were running surpluses and now we are running massive deficits? A couple of reasons come to mind, but they don’t quite add up:

• Massive infrastructure programs to help start up construction and such
• Less Government income, because less folks are working (and those that are, aren’t getting huge raises, and some even took pay cuts).
• More unemployed, so more money going out of the EI “cash cow”, instead of coming in.

But this doesn’t seem to add up to a $50Billion deficit in my mind, but again, maybe it is just not that simple. Anybody think of any other reasons?

The Tories saying they are reviewing the lyrics of O Canada, while the economy is just recovering and the Government has blown more money than Paris Hilton on a shopping spree in Paris, is possibly either the greatest strategy ever, or the dumbest, I am not sure which. How many Canadians are worried that “… in all thy sons command…” is not inclusive, is more important in comparison to where the Economy stands, and the size of the national debt? I am sure there are some that are losing sleep over our National Anthem, but frankly it really doesn’t grease my wheels much (but then again, I have a son, and he is commanding, so maybe I am biased).

With glowing hearts we read many great postings this week written by the financial bloggers, from the true North strong and free. From far and wide we searched to find those posts that stood on guard for us, and here are a few of them:

• Michael James looks a gift horse in the mouth, and finds a few rotten teeth, in his post Overpaying for “Free” Life Insurance. I guess we should figure out whether “free” is too expensive for us.
• Preet sure talks to a lot of interesting folks, and thanks to his chat with Michael Moore he is giving away copies of Capitalism: A Love Story — Giveaway. Remember true love, is always saying you are sorry.
• The Canadian Capitalist has some Tips for your RRSP Contribution which is useful, even with RRSP season being over effectively.
• Larry MacDonald talks about the 2010 Budget and Personal Finance, and he should know he’ll have been locked away learning about it.
• Canadian Financial DIY points out that Canadian Computer prices might not be as big a gouge as they used to be in The Mighty CAD.
• The Quest for Four Pillars takes on a topic near and dear to my heart with Buying an iPhone From Rogers? – Don’t Believe a Word they Say. I’d like an iPhone, but they are just too darn expensive.
• Gail Vaz-Oxlade gives us something to think about with 8 Reasons Why YOU Don’t Save, how did she know?
• Ellen Roseman returns from a nice vacation and gets Back to Work, helping people get refunds. Vacations are refreshing, wish I knew how to go on one.
• To Succeed Financially you must Know Yourself says Million Dollar Journey, which is true. No financial plan works unless it fits how you want or can live.

Remember folks, there is a new budget and maybe soon we’ll have a new, non-descript, non-threatening and boring National Anthem. I suggest that we hire John Tesh or Air Supply to write it! Have a great weekend.

Don’t You Usually Comment on the Budget?

Yes, I’ll wait until Monday to comment on what the budget means to me. It seems I have walked into another cost cutting world, wonder if the Public Sector’s lay-off scares are worse than in the Private Sector?

For parents one cool thing is that your estate can transfer (after your death) from your RRSP to your disabled child (or Grandchild’s) RDSP, which could be a very good thing for those with disabled kids or grandkids.

On Friday Stats Canada published their Labor Force Survey for July 2009 with the following data:

• The Unemployment rate remains steady at 8.3%
• Employment dropped by 45000 jobs

I always wonder about the power of statistics when I read this, but it is their data and they can present it however they wish.

Employment in July fell among young people aged 15 to 24 and women aged 25 to 54. Since the peak in October 2008, employment has dropped 414,000, predominantly among youths (-205,000) and men aged 25 to 54 (-201,000).

Those are pretty staggering numbers until you look at:

Employment among private sector employees fell by 75,000 in July, bringing total losses since October to 436,000.

That is almost 1/2 a million folks losing jobs since October, which is not a good thing. Continued job losses means, less tax intake by the government and possibly more output of cash in EI payments, get the feeling this government’s deficit is going to grow some more before the end of the year.

Unemployment for July 2009

That is a very scarey graph especially how steep the slope of it is from 2008 to 2009.

Employment 2009

The slope drop here is scarey as well.

At least with me starting work today, that is one less unemployed and one more on the employed side of things  :-).

That is a Credit Card Debt!

Here in Canada we are flagelating our government because they are going to be running a budget deficit (they are going to spend more than they make this year) of over $50B, and rightfully so, given we have been runnnig surpluses for several years (i.e. making more than we spend), however we are humble overspenders compared to our brothers to the south (the USA). The estimate now is that this year the US Federal Government will run a deficit (remember that is overspending this year’s budget) of over $1 Trillion, wow.

That is effectively the same as giving every single human being on the earth (assuming the Trillion they are talking about is 10 to the power of 12) $140.00, this year.  Canada’s deficit would only give every human a paultry $7 , as you can see we Canadians are small time in this overspending world.

How will this be remedied in either country. Some are arguing in both cases there are 1 time bail outs that do not reflect actual spending habits (Bank Bail outs, Car Company Bail outs, etc.,), and that may well be the case, but what is going to be the fall out trying to pay back this deficit? Canada had been paying back the National Debt (i.e. the money we owe, from accumulated deficits over the years) however this latest set back is not a good thing.

As with personal finance every time a deficit is run for a year, it will eventually need to be paid back, Live Now but you will Pay A Lot More Later.

Local Ponzi News

If you think Bernie Madoff is a uniquely American issue, think again, evidently a new collapsed Ponzi scheme has been uncovered in Montreal. Earl Jones, the advisor in question is missing, as is all of his “clients” money as well.

This begs the question, do you trust your financial advisor? Are you sure you know where all your money is, and why it’s there?