Tuesday, November 1, 2011

Bankrupt Governments = Bankrupt Beavers?

So Europe's Germany, Britain & France have decided to bankroll Greece once again and the Greek beavers are expected to give them the finger. But what does the european debts crisis all really mean?

Firstly, the three big boys have loaned many of their neighbours over $3 Trillion. Their neighbours can not pay them back, so they are also technically bust. Any more unrecoverable loans will have to be paid through "Quantitative Easing", ie. money printing, by G & B & F. But this would normally lead to inflation and these countries are already experiencing over 5% inflation rates.

The USA's debt is mainly held by China who isn't likely to get their money back either. China has been using their liquidity to purchase capital goods and infrastructure, but their populace isn't prospering enough to be able to afford the massive expensive housing that has been built. They are on the verge of their own USA style sub-prime mortgage defaults.

Back in Canada, we have helped our banks build up a tiny capital reserve, but they are still exposed to significant questionable investments. Our government has cut its' corporate tax rates and has done nothing to stop foreign and international companies from exporting at artificially low prices so they can skim their earnings into offshore bank accounts. Deficit days are ahead.

Canadian beavers are hanging on to our jobs and trying to pay down our credit cards by offloading our debts into lower interest rate lines-of-credit and mortgages. We are hoping we can start paying off our mortgage principal before the creeping inflation leads to interest rate hikes by 2014. In fact, when we renew our mortgages then there is a real possibility we will be facing the same dung as the yanks experienced in their sub-prime rate mortgage renewals.

The other black cloud is in property values that may decrease if the global crisis results in a major recession or depression. One side of our brain says hold on to get the benefit of inflation, but the other side is saying that whatever we pay off in principal may be devoured by a drop in real estate values.

Any drop in real estate values will hurt the banks who have 80% of Canadian mortgages. Their creditors will demand more collateral on the money they borrowed to lend to us. Thus the Bank of Canada will have to do more "quantitative easing" to support the banks again.

So it looks like we have dropped over a waterfall and are being swept into a whirlpool.

I think I'll just try to find a smaller beaver lodge, get out of debt asap, and mind my own business for a while. I just can't trust the muskrats in government or the weasels in banking to do anything that will protect me and my pups. In fact, they are likely to try and dump their losses on us sooner than later.

Keep your tails down!

Bob the Beaver

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