In writing Financial Recovery in a Fragile World, my co-authors and I have concluded that if there is any thing the world has learned from the recent financial crisis it is the significant role debt has played in causing the turbulence.
Today, many developed countries are left with a debt-to-GDP ratio that is well in excess of 85%, the point at which, researchers tell us, debt becomes a drag on economic growth. In Canada, we tow the line at 84%.
Mired in debt, it is very difficult for governments to continue to spend their way out of the crisis. Debt, has tied the hands of government leaders looking for resolutions to today’s malaise, and worse, has threatened their ability to fund the cherished services many have counted on for their future.
So, we have a triple whammy to contend with in our collective financial recovery. Governments awash in debt cannot spend their way out of the downturn; concerned individuals — worried about jobs, asset values and rising personal debt — are pulling in their horns to save rather than spend. And, this fear is not unwarranted: about 30 million people have lost their jobs globally. Put in perspective, that’s just under the entire the population of Canada.
Private businesses, to which we look for new economic growth, are obviously effected by this. In Canada a slowdown of economic growth stems in particular from the U.S. recession, and more broadly from the negative effects of global economic weaknesses, which have reduced exports and manufacturing activities.
Always a challenge, businesses must work hard to restore equity to balance sheets and continue to innovate into a new and unpredictable world economy, all the while credit and venture capital is increasingly hard to come by . If revenues vanish, they are forced to react quickly to reduce production, cut spending and employment.
It’s Your Money. Your Life. In this time of sluggish growth, it is important to manage your personal debt. On way to do so is to correct errors and omissions on prior filed tax returns before the end of December. An additional and unexpected refund could help with Christmas spending or better, an RRSP contribution.
Evelyn Jacks is President of Knowledge Bureau and has recently been named one of Canada’s Top 25 Women of Influence. Knowledge Bureau has just published new courses on debt management, updates to cross-border taxation issues and a new library of personal, corporate and GST tax matters to take recent court cases into account. For more information call 1-866-953-4768.