Anonymous has left a new comment on your post "The Price of Money ?":
Perhaps Mr. Duncan meant to say the province's debt, rather than its credit rating.
When any institution, company or government, goes into the public market to borrow money it will be assessed an interest rate that is directly tied to the trust and confidence that the lender has in the borrower; the higher the trust and confidence then usually the lower the rate of interest.
Borrowing can get out of hand, particularly on the part of governments. They must maintain certain levels of social services, health, education, roads, etc. When the economy takes a downturn, as was seriously the case six years ago, the government of Ontario was compelled to continue spending and borrowing. What was different that time was the cost of money, the interest rate, went down so it was possible to borrow more for less.
But the amount borrowed has to be repaid some day and as the borrowing increased so did the debt, both the annual budgetary deficit and the cumulative total.
At some point it is this combination of budget and total debt that starts to impact a borrower's credit rating. If it is felt that the debt is excessive and that the repayment will have to be extended over a greater period of years then the credit rating will certainly become a factor. It should be noted that the credit rating of the United States was downgraded a few years ago. Just imagine!
What many forget is that it was the few credit ratings companies that completely screwed up their credit ratings forecasts, and these understatements or overstatements became a major contributor to the near collapse of the global financial system. It's like getting a diagnosis from your doctor, being prescribed a specific medication, and then finding out that you nearly died because your doctor was wrong.
We have a problem in Ontario and it will be with us for a good while.
Posted by Anonymous to Our Town and Its Business at 3 July 2014 21:43
Thursday, 3 July 2014
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4 comments:
An excellent summary from your guest poster. It sure beats trying to read through the reams of turgid prose in the business sections. Now I can skip them.
Great post...I don’t think anyone really knows what are debt really is right now. I don’t think anyone really knows how much money they’re printing either. The integrity of those credit rating companies is no better than the government. Now that we’ve given the Liberal government a majority government, there is no stopping them when It comes to spending for 4 yrs. We’ve given them the bank, and off spending they will go. York Region’s debt is $2.4 billion. I heard a Regional Councillor defend that debt saying that 80% of that will be paid by future development charges. “Future”?? That means that they have borrowed against future development! Yet I hear York Region towns patting themselves on the back that they have no debt! Shameful
"We have a problem in Ontario and it will be with us for a good while."
No kidding, at lesat 4 years would be my bet.
Ontario's net debt in 1990 was $$38.4 billion.
Ontario's net debt in 1998 was $114.7 billion.
Ontario's net debt for the current fiscal year is projected to be $289.3 billion and within three years well above $300 billion.
The problem will be with us for many years.
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