Economic debt dance

To the editor ( April 20, 2011 )

So we are not worried about the debt, oh good, Im much relieved. That was what I was thinking after reading the “Moncton seeks authority to borrow $26M” article of April 14. After hearing so much about deficit and how deep in the financial hole we are, I was reassured by the confident attitude that is just fine for us, as a city, to borrow another few million dollars. Who do we borrow money from anyhow? No one ever seems to say. Then I took a sip of coffee and my brain started working.

The more I get to know about this economic-debt dance the more Im sure that we are doomed, so there is no point in worrying. Basically we are faced with the current situation; If we don’t have enough real tax $ one year to do all the things we need to do, we borrow. That is creating a deficit. The next year we have to pay back what we borrowed plus interest. We are not getting a friendly loan from mom. But if we can’t pay it all off, it stays around and we have to pay interest on it next year, etc. This is how a permanent debt is created. For example; If we borrow 20M$ at a 10% interest, the next year we should be paying back 22M$ But if we had to borrow the money, is it likely we can repay it? Usually we repay some, the interest and a part of the principle from the first loan and borrow some more. Lets say we were able to pay 12M$ so our first debt is down to 10M$ along comes the interest charge and next year we are having to pay 11M$ if we want to be rid of it.

I know this is a bit simplistic but from the research Iv done, it does reflect the way things work. In reality the payments would be stretched out in smaller amounts over a much longer time, so in the end we would not be paying 23M$ for our 20M$ loan, as in the example, but more like 30M$. This is insanity.

All the projects on the table are nice, some are very necessary, but if we keep borrowing under the current system we are just digging a deeper hole. “Moncton’s debt level is around 15% of our annual income.” The article made it seem like a good thing. That is like saying; my ship is not sinking as fast as yours.

We have to start seriously looking at how to make sacrifices. Live totally with in budget or reform the way government borrows money. There are possibilities we can try or we can just keep going down this road until the annual debt service payment is 90% of the government’s budget.

Think about it