Ontario—Greece In Waiting?


   Do not think about, write about or deal with  human behavior without determining the effects of incentives.

    Economic matters are quite boring to most people, but, if wealth creation stops or slows down, everything else is affected. All of the “good works” government do are dependent upon it. One of the components is the credit worthiness of the government. Greek government bonds were credit worthy a decade or so ago. The debt crisis did not happen overnight. Ontario now has over three times the per capita indebtedness of California, a declining jurisdiction. See the bankruptcy coming.

Ari Altstedter
Bloomberg News
On Friday, a day after Kathleen Wynne’s Liberals won a majority in the Ontario election,

BlackRock’s head of Canadian fixed-income said “We’re on high alert that S&P will downgrade Ontario.”

Ontario’s borrowing costs spiked the most in six months Friday as investors wagered the province’s credit rating will be cut after Kathleen Wynne’s Liberals won re- election on a plan that would increase the deficit.

The extra yield investors demand to hold Ontario’s latest 10-year bond over a Canadian government benchmark note rose 2 basis points at 10:20 a.m. in Toronto, the biggest one day jump since January 10, according to data compiled by Bloomberg. Standard & Poor’s has a negative outlook on the province’s AA- credit rating, a signal it expects a rating change will be lower. Moody’s Investors Service called Wynne’s fiscal plan a credit negative on May 2.

    They’re seeing a deteriorating financial balance sheet

“We’re on high alert that S&P will downgrade Ontario,” said Aubrey Basdeo head of Canadian fixed-income in Toronto at BlackRock Inc., the world’s biggest money manager. “She’s front-loading the deficit or the total debt in anticipation future years will benefit from stronger growth. They’re just looking at the raw numbers and they’re seeing a deteriorating financial balance sheet.”

Wynne has promised to use deficit-fueled stimulus spending to spur an economy that stagnated at 1.3% growth in each of the past two years before paring back to balance the books in years to come.


    Deficit-fueled stimulus spending–borrowing money to spend on pointless government projects–why does anyone think this will work? A strong belief is not a fact.

Under the Liberal plan, a $3 billion boost to program spending this year would increase the deficit to $12.5 billion from $11.3 billion last year. Wynne has pledged to eliminate the deficit by the 2017-18 fiscal year by holding spending for three years following the 2014 increase.

An S&P downgrade would put Ontario in the single-A range of its ratings scale, though investors would take the ratings of other firms into account as well to determine borrowing costs. Moody’s Investors Service rates the province Aa2 with a stable outlook and Fitch Ratings has a negative outlook on its AA rating. DBRS Ltd. has a stable outlook on its AA Low rating.

“It should happen quickly, although the agencies may wait for the budget to be reintroduced,” John Braive, vice chairman at Canadian Imperial Bank of Commerce’s CIBC Global Asset Management unit, said by e-mail from Toronto today.

Ontario’s borrowing-cost advantage over lower-rated Quebec shrunk to only five basis points, the lowest spread all year, the data show. An S&P downgrade would put Ontario’s rating in line with the firm’s assessment of Quebec.

    Its going to be a challenge for the province to hit their out year spending targets

In the U.S. bond market, the drop from AA to single-A for a foreign government can mean about 1 percentage point higher borrowing costs on average, according to Bank of America Merrill Lynch Data.

“Its going to be a challenge for the province to hit their out year spending targets,” Braive said, adding that the province will need to issue more bonds as a result.


   There is no end to nonsense when a government will run yet another deficit, greater than the combined deficits of all the rest of the provinces AND the federal government  and pretend it’s “deficit fighting.”

     A person who emigrated from Greece told me, about six months before the Greek meltdown, that the worry was misplaced. People were going to restaurants, everyone she knew had jobs and cars and no one seemed to be worried.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies


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