Tuesday, February 11, 2014

Choo Choo Train Wrecks: A tale of cost cutting and de-growth

I'm not even going to bother trying to cover this budget this year, I've failed to cover it front-to-back two years in a row and I don't like leaving things half finished but to go into every detail and write out the mappings as I read and see them due to the fact I only blog when I have a chance pushes the postings far outside their window of relevance. Many posts die because I can not complete them within the time frame in which they appear relevant and those budget posts are by far the worst.

Heading into 2015 though I don't even need to read that junk. Everything I needed to know about this year's budget can be found within this news article.
OTTAWA -- The badly needed new equipment on the Canadian military's shopping list may end up becoming a wish list over the next three years after Tuesday's federal budget pushed $3.1 billion in planned capital spending off into the distant future.

The reallocation and delay outlined in Finance Minister Jim Flaherty's fiscal plan puts in writing a contraction in military spending that has been evident in defence circles for a number of years -- and which the Conservatives have been keen to play down.

It's partly a reflection of the government's failure so far to deliver long-promised new ships, search planes, helicopters and trucks, but it's also a significant part of a concerted Conservative campaign to outflank the deficit in the run-up to the 2015 election.

Defence sets aside a certain amount each year to buy new gear, but the new budget kicks that planned spending -- originally scheduled to take place between 2014 and 2017 -- down the road to "future years," putting many programs in doubt.
Oh yes, Canada is going to have a "surplus" all right; just as Klein gave Alberta a "surplus" back in the 90s which Alberta is paying for dearly now in all sorts of new "capital spending" debt (remember when he made it illegal to run a deficit? LOL!). If defence spending is being "deferred" you can pretty well bet anything that gets in the way of a shiny "balanced budget" will be deferred as well. Apparently at some point "in the future" interest rates and the cost of currency will be even cheaper I guess and growth will have restored?

I actually started writing this post before the budget came out but I just couldn't complete it. It was missing something, the right article on cost-cutting portrayed in just the right way. This post wasn't even about budgets initially, at least not directly, but it fits in beautifully. Current events and trends dictated this budget would be exactly the way it is...

Why "balanced budgets" don't make any sense in a debt based monetary system

As we're now discovering - or at least as now some people are discovering - the Alberta "balanced budget" was all a big scam which serves as an excellent poster child of "debt-ridding" success stories.

In a debt based economy a "balanced" budget is a "do nothing" budget. Cutting costs isn't just about doing things better, in reality what it translates to is either overworking some people or more commonly if no people are available to overwhelm with their workload is to simply not do it. In the case of Alberta people have actually died as a direct result on the infamous Highway 63 in which one of the first responders reassigned to work there compares the carnage to narrow immovable mountain passes. The power of money.

If balanced budgets really mattered, or were even possible for that matter, we wouldn't measure economic health as Debt-to-GDP. Debt-to-GDP implicitly declares that there will always be a debt to pay. There has to be, if there were no debts to pay there would be no currency to pay it with. Sure governments can temporarily "defer" new spending but the budget is never truly balanced but rather the debt - which is a claim on future wealth - is simply transferred to another part of society. The same thing goes for taxes as that is directly transferring the debt back to the people. We've covered before how 11 cents from every tax dollar as of 2010-2011 goes to paying the public debt. That's 11% - for comparison of how large is: that it is all of  the tax dollar's allocated for Canada's defence and Canada Revenue Agency combined. Defence is 8cents. Payments on the debt is 11cents. See what I'm getting at here? The needed spending for those other sectors is financed through the public debt. A promise of balanced budgets is a promise of at least an 11cent on the dollar payment to private banks on every tax dollar received until that debt is paid off. Going back to that old post here's what I said then:
Conclusion

If you treat Canada as an economic island, the charts presented by the author look great. however, we are not an economic island, we are a country trying to balance it's budget in a global ponzi scheme. This ponzi scheme (as all ponzi schemes) will end. Canada's position in the global economy and our large deposit of resources and land in comparison to our population hide how bad our financial situation can quickly become.

While I agree with the author that the sorts of austerity being proposed in Canada are not required I don't agree there isn't a significant problem with Canadian governmental debt.




As you can see, as soon as the 2008 crisis hit, the United States has quickly doubled their M1 money supply and you can sure bet the Canadian economy benefited from this significantly. This increase is unprecedented. The U.S. can't keep it up forever though, and when it can't go on any longer due to a loss of confidence in the USD (short an economic miracle) - only then will Canada have a clear view of exactly how bad our economic circumstance really is.
I know, sounded crazy then right? But now?
OTTAWA (Reuters) - Canada's trade deficit in December jumped to the highest level since November 2012, C$1.66 billion ($1.49 billion), almost C$1 billion more than expected, with imports hitting a record level despite a drop in import volumes.

Statistics Canada on Thursday also made a major revision of the November gap to C$1.53 billion from an originally reported C$940 million. Analysts surveyed by Reuters had, on average, expected the deficit to fall to C$700 million in December.

Higher prices, partly due to a weaker currency, accounted for all of the 1.2 percent increase in the import level to C$41.38 billion, eclipsing the previous record set in August. The volume actually fell by 0.4 percent while prices rose 1.6 percent. Many imports are priced in U.S. dollars, making them cost more if the Canadian dollar falls.

Exports were up 0.9 percent to C$39.72 billion, with the volumes of exports rising by an encouraging 0.8 percent.

The climb in imports was led by crude oil, largely from Norway. A decline in exports of energy, food and cars and car parts partly offset increased exports in most other areas.
A "balanced budget" when Canada can't look forward to "housing growth" and has "low inflation" is simply going to further hamper attempts to jump-start inflation which in a debt-based economy requires inflation or you get a credit crunch like what China has been going through lately. Hmm. (See: Frugal or Feudal? Taper terrors and the costs that bind us)

In any case any debt we don't pay for on paper today will be paid in destruction, malfunction, and maybe even lives in the future. We've already invested in our lifestyle you can't just not maintain it and expect it to keep glued together. For instance, maybe we end up paying for "the debt" we're not willing to put down on paper by a few more towns exploding due to cut-backs on pipeline inspections or rail inspections by regulators?
A series of fiery train crashes has spurred regulators to take a closer look at the booming movement of crude oil by rail. But documents obtained by NBC News show regulators have known about issues like overloading and mislabeling that may increase the risk of shipping the oil since as far back as the fall of 2011, a year and a half before the first of the crashes, which killed 47 people in Lac Megantic, Quebec.
But just like the debt of climate change and more direct environmental damage we will be paying it in one way or another. Not just us, the generations that come after us. That is what a "public" debt is. As I said, a balanced budget is a do-nothing budget when your entire monetary base is debt and saving is "bad" and "deflationary" as if you could find a "savings" rate on your "deposit" (really a loan to the bank) that even comes close to "inflation" on top of the ludicrous banking fees you're charged for them to gamble with your money instead of holding it for you in trust meanwhile consumer debt has hit a record 1.4T! Congratulations Canadians on "living large" on your over-leveraged houses! Good work. E for effort easing.

It's not just the government, it's the people, and it's the companies. As purchasing power diminishes companies are going to be cutting costs in many different ways such as abusing the temporary foreign worker program gracefully provided to them by a government heavily invested in keeping the illusion of our house of cards going. People will cut more and more expenses from their budget as slowly acceptance of being a "used-to-have" takes hold and begins to lead to anger and eventually organized resistance. In it's wake will be a litter of crumbled infrastructure as the sun sets on the prosperity a 200:1 energy return on energy investment ratio brought us and reminds us of the waste, junk, and quarterly reports we spent the bounty on. Now it's debt payments and austerity for the lot of you.

The nuclear question

Now I wasn't originally going to cover this but a discussion on The Disaffected Lib had me give a quick position with no justification and being that it bugs me just arbitrarily stating a position with no rhyme or reason behind it I've decided to include my justification here as it does fit into the overall theme.

Please watch this documentary on nuclear waste storage and a development currently under construction to hold nuclear waste before we continue. Don't mind the production quality, it's foreign and independent. It's the content that is important.


Now, also please watch this documentary on the events that lead to the unit one meltdown at Fukushima:


So I hope you watched them both but in regards to the second one I will sum it up thusly: It wasn't the natural disaster that caused the meltdown, it was a known flaw in the plants. A flaw that TEPCO had known about, there was a fix for, and simply failed to fix. Human error, and cost cutting. Now, you might be saying this sounds like an argument in support of nuclear energy, no human error, no disasters right? We'll.. just.. build the perfect system!

Chernobyl, too, same thing. Human Error and cost cutting. A skeleton crew was performing maintenance a full crew should have been doing.

Japan has 40 years at best to fully decommission the Fukushima disaster as radioactive water continues to pile up by the day, and they reach ever higher levels of debt importing the replacement energy in the form of fossil fuels, currency that would be highly valuable for building their "ice wall" or whatever the hell they think they can do now to fix this mortal wound bleeding radiation all over my delicious seafood.

What do you think the odds are of Japan going 40 years without another disaster? Or more human error? In the first video you see them planning for and investing (presumably with debt) for a 100 year nuclear storage super bunker that in the event of the apocalypse any future civilizations that were sent back to the stone age could stumble upon it and not be tempted to or even be aware of the fact they may be able to enter it. That's some expensive shit, and requires long-long-long term planning. It's a fools errand, a massive waste of energy and resources. But even further it represents another type of debt against future generations.

Ultimately my objection to nuclear power is that it is selfish of us to utilize the advantage of plentiful nuclear sources and the stability and infrastructure levels required to operate and ultimately decommission one. Their maintenance will be subject to the same "balanced budget" impossibility that is demanded of all of us which is of course going to result in some dangerous decisions.

What if our children don't have the money to pay for their maintenance, or decommission, or god-forbid cleanup should our old rickety power infrastructure blow up in their faces? Nuclear generation is a multi-generational investment and we should be thinking very carefully before committing our children to the operation and decommission of such machinery especially as we starve them of their resources, their wealth, and put them into public and personal debt. Just because we can, doesn't mean we should.

The story of de-growth

Balancing the budget by starving society of the funding it needs is simply de-growth which is being enforced on us by our natural environment, peak oil, etc, manifesting itself in the cost of doing business by another name. The stock market might be going up but all our children are going to see is the legacy of ruin and dreams of what was as they go about their involuntary task of paying for your way and cleaning up what was left for them.

De-growth is coming, whether we like it or not. The Occupy encampments: that was what voluntary de-growth looks like and most of the people volunteering had no idea that's what it was going to be. It happened, naturally, because it does happen naturally and no amount of economic tricks can hide it it will just show up in different, often destructive, areas. It's coming, and I would suggest embracing it as simply the way things are now instead of going down kicking and screaming the whole way, as the system and status-quo hopes you will. Take control of it, it's yours to control.




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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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