Can Canada go the way of Greece?

Greecehslergr1 / Pixabay

Can Canada go the way of Greece?

By HardCoreValue, he can also be followed on  twitter
George Athanassakos is a finance professor at the Richard Ivey School of Business, University of Western Ontario. For those Canadians who are lucky enough to have started value investing at a young age, aim for this program. For most of us who are passed the formal education stage of our life check out the Ben Graham Centre for Value Investing where George is Chair. There are some tremendous in-depth videos with well known value investors (Prem Watsa, Francis Chou, Seth Klarman just to name a few).
George recently wrote an article for the Globe titled Can Canada go the way of Greece. Check out the full article on Globe Investor but I want to highlight some of the key points.

An overleveraged economy:  Although Canada has a low government debt to GDP level when you add in household debt Canada is actually worse than Greece. “203 per cent for Canada vs. 195 per cent for Greece. In fact, Canada is in the top five countries in the world when you include government and household debt; Greece is not.” (I talked about household debt here.)
George also mentions the future promises of social programs and CMHC’s insane mortgage liabilities (Canada’s Freddie Mac & Fannie Mae, which I briefly wrote about here.)
Declining manufacturing sector: As a share of GDP, manufacturing in Canada stands at 12.8% vs 13.8% for Greece. Both have been in decline but I see more importance in the line: Canada’s economy is dominated by energy and material producers, the type of companies most vulnerable to a global slowdown. (I warned about Canada’s vulnerability to a resource crash here.)
Low productivity and high unit labour costs: Both countries are not as innovative as their main trading partners.
An over-bloated, highly unionized and handsomely paid public sector: 
Canada Greece
Public Sector Employment 20.60% 22.10%
Public Sector Unionization Rate 72% 60%
Overall Labour Force Unionized 29.70% 23%
Federal government workers’ total compensation (which includes benefits and shorter week hours) is 41.7 per cent higher than similar jobs in the private sector, whereas municipal workers make 35.9 per cent more and provincial workers 24.9 per cent more. Figures are similar for Greece.
(This is particularly frustrating given Canada’s high unemployment rate.)
Total government spending as a percentage of GDP is 49.8 per cent in Greece vs. 47 per cent for Canada.
George concludes that Canada has been lucky for two reasons.
1. Our housing sector has not tanked.
2. China and India have driven resource prices higher, benefiting Canada (and Australia)
He rightfully points out that these positive forces can change at any time.
It’s a well written article that is very contrary to public opinion.

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1 Comment on "Can Canada go the way of Greece?"

  1. How is it that double-entry accounting could be invented in Italy and SEVEN HUNDRED YEARS OLD and yet Western countries could not make it mandatory for everyone in their schools?  The worker/consumers are supposed to be kept properly ignorant so they can be taken advantage of so the economics profession has helped create this problem.

    I have both of these books:

    The Accounting Game: Basic Accounting Fresh From the Lemonade Stand

    Glencoe Accounting, First-Year Course…donald/9780078456701

    The second book costs 5 or more times as much as the first.  It has the basic accounting equation on page 48 the first book has it on page 6.  Depreciation is on page 524 of the first and 114 of the second.  The first book is hard cover and has LOTS of color glossy pictures.  So is the objective to spend a lot of time and money learning a little or learn a lot in little time and not spend much.

    Which is smart accounting?  Does smart accounting serve the purposes of these expensive schools?  Curious that they have never suggested mandatory accounting.  Don’t teachers buy houses and cars like normal people?  So either they can’t figure out what information is important or they are not making sure everyone knows it.

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