Around The World in 100 Words - August 2016; Week 32

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It's the dog days of summer and September is just around the corner. Back to school, back to work and back to reality in general. Attached is an editorial cartoon that captures the reality of Canada's economic predicament. A history of high deficits run by fiscally irresponsible governments has created the Frankenstein monster that lurks in the background. Yet the best our current government offers is a false and patronizing promise of sunnier days. Borrowing without limit has very real medium to longer term impacts on the Canadian economy and the standard of living of Canadians.

Like the rest of the Developed World, citizens elect governments that promise more than the tax base can support. To bridge the gap, governments of all stripes borrow the difference and ignore the simple truth that we cannot live beyond our means indefinitely.  Highly indebted governments and consumers with heavily on economic growth and the limits of Monetary Policy to redress this are evident. 10 years of record-low interest rates have failed to achieve their objective: a synchronized global economic recovery. Instead we have a handful of countries that are growing (the US and Germany among them), while the rest of the world struggles to break-even, resorting to borrowing even larger sums against their countries' future in a delusional belief that you can borrow your way to prosperity. Our governments in Ontario and Ottawa subscribe to this school of thought to our detriment.

So what's the take-away from this? In simple terms, just as Mary Shelly's story doesn't end well, neither we should expect ours to either. Government's in the future are going to have to significantly increases taxes and user fees while passing direct costs to their citizens for many of the things they currently expect from their government. This means that all of us have to save more, invest more and be more realistic about Canada's economy and stock markets going forward. We are here to help you with each of these, to ensure your portfolio is positioned best to meet the challenges going forward. 

 

The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.