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May 09, 2008

Are We Paying Canada's Debt Down Fast Enough?

I've been thinking more about Canada's National Debt, and what the overall health of the world's economy may be in the next five to ten years. After reading an article related to my previous thoughts, I think we do need to change course.

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There were a few good comments on my previous two articles (the above linked one, and then this one here). Here's a particularly blunt comment that made me take pause:

What a lame excuse is it to put a finger at USA and claim that they are even worse than us. So even if they are, that still don't make us no better, forget USA! We have a problem at hand.

Yes, we do. And the problem is this: we can continue to basically ignore Canada's national debt, taking 46 years (well over a generation) to pay it off, as long as times are good and the federal tax dollars are flowing in at a healthy rate. However, if the USA enters into a worse depression than it is already in, and drags the rest of the world with it, then we're in trouble. Individual tax payers would be hit by a depression, so there would be less federal tax money coming in (I'm greatly simplifying things). Although some federal programs could be cut, we would find that many or most could not. We would also find that we would no longer be paying down our debt, instead we would be adding to it.

So the question then becomes: "How long until Canada sees a major recession, or even a depression?"

At this point I'd like to encourage you to head over and read Eric Janszen's excellent article: The next bubble. It's a bit of a long read, but it's worth it.

The relevant conclusion that Eric reaches is that USA's next major recession isn't that far off. It will come as soon as they have experienced their last market bubble:

Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.

If you read his article, you may come to the conclusion that eventually we're going to run out of bubbles. I agree. It isn't a question of IF the financial markets are going to crash, it's WHEN.

I think the solution for the present day is to start paying down our national debt more aggressively than we already are, so that when the recession does hit we aren't so deep in debt.

On a positive (and somewhat related) note, my wife and I just finished paying off our line of credit account, and we also are not carrying any balances on our credit cards. So the only regular debt payment that we are making is our mortgage payment. We're preparing for the upcoming recession, and if you're reading this, then hopefully you are, too.

Posted by Hammer at 11:52 PM | Comments (3)