'I want to win the future for Ontarians'

by: Rob Ferguson and Robert Benzie, Toronto Star,

Sunday, July 24, 2011,


I must agree with Paul Ferreira; the NDP candidate hoping to win York South-Weston back from Liberal MPP Laura Albanese when he says the McGuinty Liberals are "getting desperate.”

Once the economic engine of Canada when Bill Davis was Premier and after only 6 years of Dalton McGuinty's leadership, no less, Ontario became an official have-not province in 2009 collecting a government cheque for the first time in our history! Shameful!!

With little to show since and notwithstanding taxpayer encouragement, is it possible that Dwight Duncan's meager attempt at finally reigning in his uncontrolled spending habits could be just a long overdue attempt to forestall a bond holder haircut resulting from Ontario's mind-boggling $16.7-billion budget deficit?

Rating agencies, in a clear declaration of skepticism regarding the province’s capacity to rein in its deficit have already expressed their concern that this government will be challenged in implementing a multiyear financial plan, with the intention of restoring a balanced budget by 2018. Meeting that target would require ongoing expenditure restraint in divergence from historical growth trends while achieving forecast revenue targets through projected tax increases.

With the province’s long-term debt rating at a AA downgrade; resulting in a raising of Ontario’s cost of financing and reducing its credibility in global markets, has the 'proverbial horse already left the barn'?

Another downgrade, with others to follow as we roll down the other side of this mountain is frustrating for those who see the folly of onerous public debt as new bondholders will doubtless demand double-digit yields; but they'll be taking a greater risk and expect to earn a greater reward for buying those bonds, should they ever get paid out! But with off-shore interest payments threatening to become our largest expenditure; as Greeks and Americans are finding out, this can't go on much longer!

But the way things are in Ontario, that risk is being masked by an insidious fairy tale that any government bond somehow comes with a repayment guarantee and the unfortunate victims of this fairy tale are young Ontarian's tied to the debt run up by an older generation.

Attracted by unprecedented yields, will high-risk betters bail before the inevitable bondholder haircut leaving the hapless to pick up the pieces anyway? Just like the credit squeeze in the run up to the Great Depression, ignoring the reality that bills have to be paid and instead choosing endless bandaids only feeds a deep moral abyss creating an even deeper hole for the younger generation. Some fault lies with the Peterson Administration, doubtless more with the Rae Administration, but some fault lies with the bondholders, and they should pay too!

As unpleasant as it may sound, to default and restructure remains the method of last resort for loans that should never have been made in the first place. The reality is that governments do default; it has happened before and will happen again! But that lesson is being ignored in an over-borrowed Queen's Park as if it doesn't fit with someone's economic fantasy. But all of this may be a moot point if, and when the bondholder's say, enough is enough, as France and Germany have done to the Greeks and China has done to the Americans! The only question is...should young Ontarian's wait or pull the plug now?

Despite plenty of complicating factors, not the least of which is the viability of myopic banks who are now treading water with debt tied to stagnant CDO's and who no doubt regret pouring as much as they already have into this deep hole, don't young Ontarian's deserve a new beginning? So, perhaps a bondholder haircut would not be such a disaster after all!