Red Ink

An article in the Globe and Mail’s Report on Business by Barrie McKenna might make you consider the characteristics of blotter paper.

To be clear, I’m not a politician, I’m not an economist, I have little power to change things and right now having read this article I’m not even sure I have answers.

The article got me thinking about two things – both are bothersome, both are close to home, both made me very uncomfortable. I suspect they might make you uncomfortable too!

Too Close for Comfort

Courtesy Globe and Mail

First, it was the map that upset me. It’s typical of maps seen many times. It depicts a xenophobic perspective where the world exists somewhere between the northern border of Mexico and southern border of Canada. As well, I suspect Texas had something to do with it for they always put a shrunken Alaska, the largest state and more than twice the size, somewhere nearby to make it look smaller than Texas.

As always, the visual perspective is one where the ink magically stops at prescribed north and south lines. However, this is the bothersome part – what if the map had been drawn on blotter paper instead. What if that red ink could easily bleed across those prescribed lines?

Poking around the map I see a lot U.S. states in financial trouble – many more than I previously appreciated. California is probably the worst off according to Mr. McKenna, as it is on the verge of bankruptcy. It is a state that is about to pay an price for decisions made many years ago.

Far Away

Second, is distance. It’s not hard to find daily reports that discuss equivalent dire circumstance in Europe. It’s not even on this map.

Often described is an eerie similarity to events happening with our southern neighbour. The reasons for the financial mess differs on many points, the result is the same. California, Washington and other states are in serious financial difficulty. They have no money to pay their bills. While the impact of Europe’s issues seem distant, the states are close to home.

Washington state is 35 miles away. California is a 2 day drive. Idaho, Oregon, Nevada are about the same. The map isn’t much different to the east. There are few states that don’t have their toes stuck in financial concrete. If Mckenna is right, they are headed toward a fate similar or worse than Europe’s.

Capillary Action

Last, I guess what bothers me most is that 48 of the 50 states are bleeding red ink. In total, the financial implications are so big that their red ink will by way of economic capillary action bleed across that northern line to affect us all. Because we have such close ties to this country how can it not? Is it unreasonable to expect that their financial woes will not overpower that fine line. Are we to believe that the red ink will not blotter its way across the borders?

Call it a hunch. If they don’t have enough money to pay their bills and they have no means of collecting money via taxes (Proposition 13), by which to do so, the final solution is a default. Taking what may be the last clean air deep breath, I try to understand all the implications but can’t stop myself from believing that if the U.S. financial woes burst open, the red ink will reach flood proportion. Holding that breath, I wonder if we Canadians will be able to contend with the excess red ink as it flows north.

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Boombust Says:
June 28th, 2010 at 6:13 am

You kiddin’ me Larry? We’re toast, too.

I CANNOT BELIEVE how people, particularly in the “Best Place on Earth” are soooo ignorant and smug.

“We’re different!”

I am really fearful as to what is coming.

June 28th, 2010 at 6:36 am

Oh good it’s not just me! The idea of the ink spilling is more than a little disturbing. This may be too simplistic but I question at what point does credit stop? We know where that line is on a personal level but, where does it stop when a government and I’m told we are the government, stop.
It leaves one to believe that it just can’t go on forever.
Assumed is that all these loans are backed by collateral – what ever government collateral is. What if the collateral is worth less than the value of the outstanding loans.
Being silly – if you had the money and were prepared to assume the liability of these places and the price for Greece or California was a $1.00, the question is, would you buy them?

Other Mike Says:
June 28th, 2010 at 7:05 am

we are actually lucky to have governments that can ram through a tax increase like the HST. Half the problem down there is that you have to have a referendum to raise taxes. Fat chance getting people to vote for that. Add to that congressional elections every two years and no wonder they can’t get anything done.

vomitingdog Says:
June 28th, 2010 at 11:43 am

Half the population is up in arms about HST. They much rather spend their money buying housing they can ill afford with mortgages that are backstopped by Canada’s Fannie & Freddie. Canadians have record personal debt, and if you read back through Mish Shedlock’s blog Larry, you will find data that shows Ontario is no better off than California.

Krugman says that without more easy money, we’re stepping off into a 3rd depression. Without tax increases and curbed spending, Germany is worried about Weimar Mark II. Both sides are battling it out at the G20 and idiots are holding up posters about Monsanto and demanding a greening of the global economy akin to Spain –they would the S in PIIGS that are a part of massive sovereign debt & 20% unemployment.

But let’s all just keep our eyes and ears focused on CREA press releases. Our money is a safe as houses, aye?

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