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May 09, 2008
Are We Paying Canada's Debt Down Fast Enough?
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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 May 9, 2008 11:52 PM |
I've been thinking more about If you enjoyed this article, you may want to read more in the Finance category.
Comments
300 millions stephen harper spend on early election.50 billions he did corporation tax rebate.I mean rich becomes more richer with my tax money.Is this money could use for nation debt.I would like to see my Canada debit free before i die.I am only 44 so i am wishing for it.
Congrats on becoming (personal) debt free!
"It isn't a question of IF the financial markets are going to crash, it's WHEN." Good call.
That being said, I think that it's our financial responsibility over the last 15 years allow us to ride out times like this. I don't want to get deep into the causes of the crisis or what we might have to do to get out. I only want to say that if we have to temporarily increase our debt to help us through the worst then we should. Or maybe we just have a balanced budget and not a surplus.
The focus has to be on Debt-to-GDP ratio. We could pay off the debt next year if we wanted to raise taxes to unreal levels and we would save a lot of money on debt service charges, but what would the cost be to our economy? We've halved our debt-to-gdp in the last 10 years: that's phenomenal. In theory that means that we are paying half of what we were in debt service for every dollar we are taxed. That's money that can go strait into paying the debt down more. I don't think it's unreasonable to expect the national debt to be gone in 15-20 years, but we have to temper our expectations to that sort of a wait.
Hi, I just found this site and I love the things posted here relating to Canadian politics and finance. I read "The next bubble" and understand only a fraction of it but I think its horrible we're about to abuse the alternative energy industry the same way we did the housing market! I'm learning to be an electrical engineer and I'm appalled at FIRE for making alternative energy the next hated topic of 2015!