Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Thursday, August 26, 2010

Debt, Hydro Power, and fighting for the Crumbs

The game of Hydro Power domination, currently unfolding in Maritime Canada, will be fueled by old faithful - debt. Or perhaps more accurately: debt capacity. Afterall, most businesses close their doors when their debts hopelessly outnumber their assets, and all the players involved in the Power War are in this diminshed position. Like the Emporer without clothes they strut, and yet their citizens dare say nothing, as to do so would force them to recognize their own naked place. And so we stumble on until the great international financiers force a mirror on us in the form of credit downgrades, credit freezes, devestating interest rates and terminal deflation.

When the government of Quebec proclaimed it's intention to buy New Brunswick Power, partner on the Lower Churchill, or any such project, it was really like the dog frantically chasing it's tail. Contemplate the following financial facts on the province: Quebec's gross debt today is 49.9% of it's GDP; it's gross debt is projected to be 53.4% of GDP by 2014; and it's current total debt is 94% of GDP. Those numbers place Quebec in the not so auspicious position of just behind Greece as one of the world's most indebted economies. Essentially bankrupt. If you combine that staggering debt with the lowest birthrate in North America Quebec's medium to long term prospects are dim - to say the least. It is estimated that should Quebec ever seperate it's debt would be aproximately 300 billion. To put that into context, Quebec would have to slash programs, and raise taxes 53% just to instantly become a member of the Third World.

It helps to put things into context. Here is another shocker. Hydro Quebec, the great propeller of  Quebec's Manifest Destiny, is in serious debt too. As of 2010, Hydro Quebec's debt is 36 billion dollars  with planned investments of 18 billion more by 2013. That's 54 billion. In that context it probably is not surprising that Quebec tries to thwart Newfoundland's entry into the market, or allow it to free the chains of the Power Contract, 1969. Essentially, through an extremely exagerated sense of self- importance, and a spending spree to match, Quebec has reached the limit. If it can not expand it's primary natural resource, hydro, then it will start to shrink and decline. In strictly financial terms it has already peaked and declined. Now they are trying to swim upstream just ahead of a massive water fall. The recent letter by Quebec's Premier to Mr. Harper, complaining that any funds given to Newfoundland and Nova Scotia would constitute an unfair subsidy to their hydro ambitions, rings hollow when you consider Quebec recieved at least 8.5 billion in equalization payments last year - including compansation for subsidized electrical rates for Quebec residents and business. Desperate people sometimes do desperate things.

The province of Newfoundland is not exactly in great financial shape either. Trapped in low wages, high taxes, shrinking revenues, massive debt, declining birth rates, net migration and surrendered resources Newfoundland is also on life support. Bravely, along the lines of the Emperor's new clothes, Newfoundland continuously fights to stay above water. However, without recapturing the Upper Churchill revenues, and developing the Lower Churchill potential, Newfoundland's future will echo that of Quebec's.

Both provinces have spent way past their means. Both have tried to build massives infrastructures in a relatively short period of time with declining birth rates. Bucking the wind as it were. Unlike say China, India, and Brazil where their population growth is positive and their development and spending is therefore sustainable, Newfoundland and Quebec have been living life on high. And for all, there comes a time to pay the piper. Now, rather than enjoying the benefits of our ancestors prudence and discipline, the things that differentiated the New World from the Old, we find ourselves like the world of Old - fighting for the crumbs.

So I say to the government of Newfoundland and Labrador: Fight. All you have to lose are your chains. But know you are in for the fight of your lives, and, therefore, fight accordingly. Please.

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