Crawl Across the Ocean

Friday, September 16, 2005

Globe and Mail Headline if they Wrote a Story about it being Friday Afternoon: "Another 5 Day Work Week Looms"

Sometimes, when I see a particularly bad commercial or movie, I like to amuse myself by considering the creative process which came up with it. This review of the Dukes of Hazzard provides an excellent example of this literary form.

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Statscan put out an update on our national balance sheet today:

Here are some highlights:

Overall:
"The stronger performance of the economy in the second quarter was reflected in the acceleration in the growth of national wealth (+1.5%)."


Government:
"Government debt-to-GDP at 20-year low
Government net debt (total liabilities less total financial assets) edged down as the government sector registered another surplus in the second quarter. Net government debt as a percentage of GDP declined further, reaching a 20-year low. The net debt now corresponds to roughly half of GDP."


Business:
Corporate debt-to-equity edges down
Since 2000, corporations have generated more funds from internal operations than they required to finance their non-financial capital acquisition. As a result of this profit-driven string of surpluses, the corporate sector has been a net lender to the rest of the economy and has also used these funds to restructure their balance sheets, largely through paying down debt.


International:
"Canadians' net indebtedness to non-residents (the amounts owing to non-residents less the assets held by Canadians abroad) fell in the second quarter"


Personal Net Worth:
"household net worth continued to advance (+1.8%) at a stronger pace than in the previous quarter.

Gains in the market value of residential real estate and of equities contributed almost equally to the change in household net worth. Stock market advances boosted the value of personal sector share holdings and the sustained housing boom added to the value of household residential real estate."


Personal Debt:
"Supported by sustained low interest rates, the growth in total household debt continued to outpace that of personal disposable income. This resulted in a debt-to-income ratio of 107.8% in the second quarter, up from 107.1% in the first quarter. Canadian households carry about $1.08 in debt for every dollar of their disposable income."


So you can probably guess the Globe headline right? "Household Debt Mushrooms"

The Globe is concerned that "Canadian households carried about $1.08 in debt for every dollar of their disposable income", but this measure doesn't even really make a lot of sense. If you try to get a loan from a bank, they will not be concerned with the ratio of your debt to your income, but rather with the ratio of your debt *payments* to your income. With low interest rates you can afford a lot more debt.

Accounting aside: It makes sense to compare money coming in (income) with money going out (interest payments) - this is what goes on a cash flow or an income statement. And it makes sense to compare total assets with total debt since these are both measures of your position at one point in time - and hence they both go on the balance sheet. Comparing a measure from the income statement to one from the balance sheet is an iffy business and should be done with care (i.e. not done by the media).

The thing is, I *am* worried about debt levels in our society. Via Timmy (posting at Pogge), I came across this interesting blog which had a post about what is driving our personal savings rate into negative territory, and that topic is probably worth a post of my own as well, but for the Globe to take that Statscan release and headline it 'Debt Mushrooms' is to take a generally positive report and put a very negative spin on it.

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I can see the discussion in the Globe staffroom.

"So, the new numbers from Statscan came out"
"Yeah they look pretty good, government debt is down, corporate debt is down, people's net worth is up, we owe less to foreigners"
"You're killing me. There must be something negative we can use for a story"
"Well, debt levels are up?"
"Yeah, that's good, are they way up"
"Statscan says they edged up"
"Edged?, that's no good. They don't use the word ballooned?"
"No"
"How about exploded?"
"No"
"Ah screw it, we'll have to make something up, could you hand me that copy of the Globe hyperbole style guide?'
"No problem, here you go"
"OK, let's see, ... burgeoned? What kind of a word is burgeoned? How about debt levels blast off?"
"No, we already have blast in a headline today"
"How about, 'Debt Crisis Looms'? I love that word. It's kind of ominous you know, makes people scared. Looms."
"Nah, we already got two 'looms' today, 'Strike Looms at GM'", and 'Conflict looms over Alberta's oil wealth'
"Was one of those Simpson? He's always stealing my hyperbole"
"No, it wasn't Simpson. You know that columnists don't get to write their own headlines, only bloggers are allowed to do that"
"Those know nothing punks, don't get me started..." [returns to looking at hyperbole style guide] "Here's one - mushrooms! Household Debt Literally Mushrooms!"
"That's too long, it will stretch over two columns"
"OK, OK, 'Household Debt Mushrooms', That's gonna sell some papers for sure."


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As an aside, I'm all for Google having a 'search all blogs' feature added to the blogger toolbar at the top of the screen, but it would be nice if, when I clicked on 'search *this* blog', it searched, you know, this blog. Just this blog. I'm just saying.

Update: Problem fixed, good to know the people who run blogger read CAtO.

8 Comments:

  • Thanks for pointing out this good news. I see how the Mop and Pail handles it, I wonder how the CPC will spin this? Kinda goes against their ranting that the Libs are fiscally irresponsible and the NDP budget will cause the breaking of the 7 seals...

    As a Dipper, I'd like to see this wealth trickle down abit more - too many homeless, and too much debt on the average person - but I still think this is positive news.

    By Blogger Mike, at 9:47 AM  

  • Im sure that in CPC world 6 seals are already broken (the CBC, the gun reigstry, the national energy program, the Kyoto accord, the sponsorhsip scandal and not joining the Iraq was (who am I kidding the list of CPC greivances cold go on forever).

    On the topic of wealth trickling down, I agree. There is a risk that while rising house and stock prices are increasing wealth, the people who don't own houses or stocks are falling further behind, especially if they are the ones doing the borrowing.

    By Blogger Declan, at 1:22 PM  

  • Beautiful. And I love it when journalists with axes to grind take liberties with the movie/book-review form - the result is so deliciously snarky. A sentimental favourite of mine is Underwood Dudley's review of a calculus textbook, which appeared in the "reviews" section of a 1988 issue of the American Mathematical Monthly magazine. The first four and a half pages of the five-page article constitute a snarky diatribe against calculus texts in general; Dudley finally mentions (and promptly dismisses) the reviewed text by name in the final paragraph.

    By Anonymous Moebius Stripper, at 4:39 PM  

  • I actually think the hot housing market is part of the problem. Jane Jacobs points out ("The Dark Age Ahead") that before 1975, a suitable family home (4 bedroom, single - family) could be purchased for 2.5 times your salary. This means that it could be carried comfortably by a single bread winner.

    Now its closer to 6 times your salary, and ussually requires 2 (or more) people working. It even has affects the rental market - people are paying 50 to 60% of their income on rent or shelter.

    Couple that with low interest rates and we have the highest level of consumer debt in our history. And more and more people are living a paycheck away from the streets becaue of the costs of shelter.

    I think its a dangerous situation. And even though there is a great return on investment for some, most people's wealth is on paper and not real.

    Thus I think that those of us that do own our own homes and some stock are actually falling behind as well, but we just don't realize it. At the risk of sounding like a real old-school Dipper, the new wealth is being concentrated in the high end, even up from the middle class.

    How else do we explain this good news, a red hot economy and yet still have increasing levels of homelessness.

    By Blogger Mike, at 6:49 AM  

  • MS - thanks for the link, that review was some really good writing, great buildup. I particularly liked the assessment of the 'applications' of calculus.

    mike - it's true, the risk of asset price increases is that they are paper gains which can quickly evaporate. I remember asking my dad once what his income was and what their house cost back when they bought it. The gap was a lot smaller than the one I face, that's for sure, even allowing that that house was in a relatively small city.

    I'l have to track down some income inequaliy stats for Canada one of these days. My general impression is that the only group making significant gains is the top 20% but last time I checked the lower percentiles were mainly holding steady as opposed to losing ground (except in a relative sense - which, admittedly, is important when it comes to competitive goods like houses).

    Still, I think a lot of the increase in homelessness had to do with social changes rather than economic ones, but I'm on expert and that's just an uninformed opinion.

    By Blogger Declan, at 8:57 PM  

  • The Grope and Flail is a rag. Compare Canada's gov't (public) debt to gdp ratio with that of the US. As of August 2005 the US public (gov't)debt is around 65% of GDP

    By Anonymous Doug Alder, at 5:03 PM  

  • Declan,

    Thanks for linking to my blog. This post is hilarious -- you're right that the mainstream Canadian press are a bunch of Eyeores. The Globe op-ed columnists are just as bad. When you open to op-ed page, you can almost hear the word "tut". On the other hand, it's probably not good that we're holding so much debt in a form that so dependent on interest rates staying low, which means we're also really dependent on our governing philosophy staying the same.

    I wouldn't call the Globe a rag though. As an int'l paper, I'd say it beats the NYT and the Washington Post.

    Great blog you have here.

    By Blogger Laura, at 1:06 PM  

  • Doug - The U.S. public debt is fairly high (and rising) but it's not really a big issue - if they choose to do something about it. The scary possibility is that they are too far gone to do anything without a major crisis coming first, making that a pretty big 'if'.

    Laura - thanks! Yes rising interest rates could really destroy our economies. Luckily they should stay down until all the boomers start retiring (increasing demand for moeny, reducing supply, thus driving up the price) so we've all got a solid 10 years or so to save some money and dig in, before it all falls apart -

    - subject to my concern in my comment to Doug about the U.S. causing things to fall apart before that due to sheer mismanagement.

    As for the Globe, I'm not sure it's better than the NYT (Krugman alone is worth half the Globe) but it's definitely better than the Post (for what little that's worth!)

    By Blogger Declan, at 3:40 PM  

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