H The Business Cycle -- Did Overinvestments Destabilize the National Economy?

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APPENDIX H

The Business Cycle --
Did Overinvestments Destabilize the National Economy?

This Appendix addresses a very difficult question: did overinvestments in commercial real estate destabilize the National economy? The Charts provide powerful evidence corroborating a substantial financial deterioration, following each overinvestment episode during the period from 1976 through 1994. The following economic variables have exhibited substantial or significant deteriorations:

Total net lending per capita (all government levels).
Consolidated deficits (all government levels; total, per capita, and as percent of personal disposable income).
Interest on the public debt (total, per capita, and as percent of personal disposable income).
Consolidated net debt (total and per capita).
Net international investment position with all foreign countries.
Debt outstanding of persons and unincorporated business (per capita, in constant dollars; and as percent of personal disposable income).

Three conclusions are unavoidable:

Massive increases in consolidated government debts and in personal debts betray an indentured population.

A National economy can be destabilized if debts deteriorate out-of-control. Debts have deteriorated out-of-control following the "credit crunch." The evidence corroborates that governments have been borrowing to pay off the interest on the public debt!

The breakup, destruction, or decay of a country is guaranteed in the long run if the following conditions obtain:

Net advantages favor systematically Big Government, Big Business, or certain cliques, at the expense of the citizen.

The monopolistic maxims and practices of the marketplace create a destructive, predatory environment.

The space-time implicate order of the economy (i.e., the space-time distribution and structure of money, including bank-money) favors rich usurers and speculators.

Chart H-1
Chart H-2
Chart H-3
Chart H-4
Chart H-5
Chart H-6
Chart H-7
Chart H-8
Chart H-9
Chart H-10
Chart H-11
Chart H-12

The Business Cycle1
Did Overinvestment Cycles Destabilize the National Economy?
The Deterioration in Canada's Total Net Lending Per Capita

Chart H-1

OVERINVESTMENTS

THE DETERIORATION IN GOVERNMENT NET LENDING PER FAMILY.
Government net lending (all levels) deteriorated substantially after each of the last two recessions. For the 1990Q2-1991Q1 recession, government net lending per family deteriorated from $-1,787 in 1988 to $-5,632 in 1993!

Chart H-1 Did Overinvestment Cycles Destabilize the National Economy? The Deterioration in Canada's Total Net Lending Per Capita

Overinvestments in commercial real estate were followed by substantial increases in net lending by governments. On a per-capita basis, Canada's net surplus (lending) plummeted from $-210 in 1981 to $-1,254 in 1985, then from $-562 in 1988 to $-1,788 in 1992.

Source: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement 1994/1995, Catalogue No. 11-210, July 1995 (net lending, all government levels, and population); and Statistics Canada, Income After Tax, Distributions by Size in Canada 1993, Catalogue 13-210, June 1995 (average family size).

The Business Cycle2
Did Overinvestments in Commercial Real Estate Strengthen the National Economy?
The Deterioration in Canada's Total Deficit

Chart H-2

Chart H-2 Did Overinvestments in Commercial Real Estate Strengthen the National Economy? The Deterioration in Canada's Total Deficit

Increases in commercial real estate loans (arrow a) were followed by substantial increases in government deficits (arrow c). (Data for 1992/93 through 1994/95 are estimates.)

Sources: Royal Bank annual reports (loans by industry, as at September 30); and Statistics Canada, Public Sector Finance 1995-1996, Financial Management System, Catalogue 68-212-XPB, March 1996 (consolidated government deficits, by fiscal year).

The Business Cycle3
The Deterioration in Canada's Interest on the Public Debt

Chart H-3

OVERINVESTMENTS

THE LINK BETWEEN OVERINVESTMENTS, DEFICITS, AND THE INTEREST ON THE PUBLIC DEBT.
The empirical evidence is absolutely clear: governments have been borrowing to pay off the interest on the public debt. The deficits have accounted for a substantial proportion of the interest on the public debt.

Chart H-3 Did Overinvestments in Commercial Real Estate Strengthen the National Economy? The Deterioration in Canada's Interest on the Public Debt

Increases in commercial real estate loans (arrow a) were followed by substantial increases in the interest on the public debt (arrow b). (Data for 1992/93 through 1994/95 are estimates.)

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Public Sector Finance 1995-1996, Financial Management System, Catalogue 68-212-XPB, March 1996 (consolidated government deficit, by fiscal year); and Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July 1995 (interest on the public debt, all government levels).

The Business Cycle4
The Deterioration in Canada's Total Net Debt

Chart H-4

Chart H-4 Did Overinvestments in Commercial Real Estate Strengthen the National Economy? The Deterioration in Canada's Total Net Debt

Increases in commercial real estate loans (arrow a) were followed by substantial increases in government net debt (arrow b). Federal, provincial, territorial and local government net debt, as at March 31, increased more than twelvefold -- from about $57 billion in 1977 to an estimated $747.5 billion in 1995! (Data for 1994 and 1995 are estimates.)

The Business Cycle5
The Deterioration in Canada's Net International Investment Position

Chart H-5

OVERINVESTMENTS

DID MONETARY AND BANK POLICIES STRENGTHEN THE NATIONAL ECONOMY?
Canada's net international investment position with all foreign countries deteriorated from -$61.2 billion in 1976 to -$339.3 billion in 1993.
Per-capita debt outstanding of persons and unincorporated businesses soared from $1,995 in 1970 to $17,162 in 1994. Reportedly, the total unfunded liabilities of the Canada and Québec Pension Plans (CPP and prorated QPP) soared from about $188 billion in 1980 to about $656 billion in 1993.

Chart H-5 Did Overinvestments in Commercial Real Estate Strengthen the National Economy? The Deterioration in Canada's Net International Investment Position

Canada's net international investment position (total assets less total liabilities) with all foreign countries soared to about $339.3 billion in 1995!

Sources: Royal Bank annual reports (loans by industry, as at September 30); P. Martin, Minister of Finance, The Budget Speech, February 22, 1994 (net public debt); Statistics Canada, Canada's International Investment Position 1995, Catalogue 67-202-XPB, March 1996 (total assets and total liabilities); and A. Coyne, The Globe and Mail, August 15, 1994, at A9 (Canada's Other National Debt: CPP and prorated QPP unfunded liabilities; reported data sources: from the Office of the Chief Actuary in Ottawa and from the Fraser Institute's International Center for the Study of Public Debt).

The Business Cycle6
The Deterioration in Canada's Interest on the Public Debt Per Capita

Chart H-6

Chart H-6 The Deterioration in Canada's Interest on the Public Debt Per Capita

Increases in commercial real estate loans (arrow a) were followed by substantial increases in per-capita interest on the public debt (arrow b). Per-capita interest on the public debt increased almost sixfold during 1976-1994 (1992/93 and 1993/94 data are estimates).

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Public Sector Finance 1995-1996, Financial Management System, Catalogue 68-212-XPB, March 1996 (consolidated government deficits per capita, by fiscal year); and Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July 1995 (interest on the public debt, all government levels, and population).

The Business Cycle7
The Deterioration in Canada's Total Net Debt Per Capita

Chart H-7

Chart H-7 The Deterioration in Canada's Total Net Debt Per Capita

Increases in commercial real estate loans (arrow a) were followed by substantial increases in per-capita government net debt (arrow b). Per-capita net debt increased almost ninefold -- from about $2.4 thousand in 1977 to about $23.7 thousand in 1994 (1994 data are estimates).

The Business Cycle8
The Deterioration in Canada's Government Deficits
and in the Interest on the Public Debt

Chart H-8

Chart H-8 The Deterioration in Canada's Government Deficits and in the Interest on the Public Debt, as Percent of Personal Disposable Income

As percent of personal disposable income, Canada's interest on the public debt (all government levels) increased substantially -- from about 6.3% in 1976 to about 13.8% in 1994.

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Public Sector Finance 1995-1996, Financial Management System, Catalogue 68-212-XPB, March 1996 (consolidated government deficits, by fiscal year); and Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July 1995 (total interest on the public debt and PDI).

The Business Cycle9
The Deteriorating Gap Between Canadian Interest
on the Public Debt and U.S. Total Current Interest Paid (NIPA)

Chart H-9

OVERINVESTMENTS

DID CANADIAN MONETARY AND BANK POLICIES STRENGTHEN THE NATIONAL ECONOMY?
The gap (arrow e) between Canadian interest on the public debt (all government levels), as percent of personal disposable income, and U.S. Federal and State and local government current interest paid, as percent of disposable personal income, widened substantially during the last business cycle.

Chart H-9 Did Overinvestments in Commercial Real Estate Strengthen the National Economy? The Deteriorating Gap Between Canadian Interest on the Public Debt and U.S. Total Current Interest Paid (NIPA), as Percent of Personal Disposable Income

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July 1995 (total interest on the public debt and personal disposable income (PDI)); and Economic Report of the President, February 1996 (Department of Commerce, Bureau of Economic Analysis: disposable personal income (DPI); and Federal and State and local government interest paid, national income and product accounts (NIPA)).

The Business Cycle10
The Deteriorating Gap Between Canadian Total Government Net Debt
and U.S. Total Interest-Bearing Public Debt Securities

Chart H-10

OVERINVESTMENTS

DID CANADIAN MONETARY AND BANK POLICIES STRENGTHEN THE NATIONAL ECONOMY?
Canada's government debt has become a crushing burden for citizens. As percent of personal disposable income, Canada's consolidated net debt soared from 47.9% in 1982 to 134% in 1994! Canadians have been clearly indentured to the Money Trust.

Chart H-10 The Deteriorating Gap Between Canadian Total Government Net Debt and U.S. Total Interest-Bearing Public Debt Securities, as Percent of Personal Disposable Income

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Public Sector Finance 1995-1996, Financial Management System, Catalogue 68-212-XPB, March 1996 (Federal, Provincial, Territorial and local government net debt, as at March 31, by fiscal year); Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement, 1994/95, Catalogue 11-210, July 1995 (government of Canada securities, total funded debt, and personal disposable income (PDI)); and Economic Report of the President, February 1996 (Department of Commerce, Bureau of Economic Analysis: disposable personal income (DPI); and Department of the Treasury: Total interest-bearing public debt securities, by fiscal year).

The Business Cycle11
Did Overinvestment Cycles Destabilize the National Economy?
The Deterioration in Personal Disposable Income and Personal Debt, Per Capita

Chart H-11

OVERINVESTMENTS

DID MONETARY AND BANK LOAN POLICIES DESTABILIZE THE CANADIAN ECONOMY?
Debt outstanding of persons and unincorporated business per capita deteriorated, from $11,718 in 1982 to $16,269 in 1990! Instead of improving (arrow e' ), as it did after 1979, the debt deteriorated out-of-control to a record $17,162 in 1994 (arrow e)! The deterioration followed the onset of the "credit crunch" at banks, and culminated with the Québec Referendum of October 1995 (arrow f). 45.8% of Quebecers voted for separation!

Chart H-11 Did Overinvestment Cycles Destabilize the National Economy? The Deterioration in Personal Disposable Income and Personal Debt, Per Capita

Overinvestments in commercial real estate had a profound impact on the National economy -- and on Canadians. Real per-capita debt outstanding of persons and unincorporated business deteriorated out-of-control -- from $11,718 in 1982 to $17,162 in 1994!

Source: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement 1994/95, Catalogue 11-210, July 1995 (population); Statistics Canada, National Balance Sheet Accounts, Catalogue 13-214, March 1995, and R. Smith, November 24, 1995 (private communication: debt outstanding of persons and unincorporated business).

The Business Cycle12
Did Overinvestment Cycles Destabilize the National Economy?
The Deterioration in Personal Debt, as Percent of Personal Disposable Income

Chart H-12

OVERINVESTMENTS

DID MONETARY AND BANK LOAN POLICIES DESTABILIZE THE CANADIAN ECONOMY?
Massive increases in National and personal debts betray a destabilized National economy. Canada barely survived the last overinvestment cycle. Will it survive the next exploitation or predation cycle? Bank stability and gargantuan profits must not be at the expense of National stability. If Big Business indentures too many too much, Canada, despite its fabulous resources and wealth, will collapse.

Chart H-12 Did Overinvestment Cycles Destabilize the National Economy? The Deterioration in Personal Debt, as Percent of Personal Disposable Income

Debt outstanding of persons and unincorporated business, as percent of personal disposable income, deteriorated out-of-control after 1989. The debt did not improve (arrow e' ), as it did after 1979; instead it deteriorated (arrow e) to 100.9% in 1994!

Sources: Royal Bank annual reports (loans by industry, as at September 30); Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement 1994/95, Catalogue 11-210, July 1995 (personal disposable income); and Statistics Canada, National Balance Sheet Accounts, Catalogue 13-214, March 1995, and R. Smith, Nov. 24, 1995 (private communication: debt outstanding of persons and unincorporated business).

A nation in debt is not a nation of free people.