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Debt, the creeping killer

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By: Graham Lane
Posted 7/07/2016

Unless governments and families restrain borrowing, we and our children and grandchildren will inevitably face a less comfortable future.

The chattering classes like government borrowing and support, if not praise, serial deficits such as the one slain by Paul Martin’s tough austerity budgets of the 1990s. Historically developed countries only amassed large debts during wars, gradually whittling them down in periods of peace. (The United Kingdom only paid off its Second World War debt owed to the U.S. in 2012.) Now we haven’t needed wars to build huge debts, and there appears to be no serious plan to ever get out of it.

Until our new federal Liberal government was elected, it was the provinces running large deficits. Including provincial Crown corporation borrowing, the biggest borrowers relative to their economies include Manitoba as well Ontario, Quebec, Alberta, and Newfoundland Labrador.

Ontario’s Premier Wynne exhibits no concern as Ontario’s debts climb into the stratosphere. While Alberta can blame lower oil and gas prices, Premier Notley’s government hasn’t made any effort to curb spending. Falling oil prices have also hit Newfoundland Labrador, but its the $12 billion hydroelectric debacle (Muskrat Falls) that could take it over the falls. Manitoba, with its own hydroelectric boondoggle, developed a structural deficit under the NDP, as Ontario did under its Liberal government.

Central banks are colluding to hold interest rates at historic lows, ostensibly to prop up growth. This has restrained, for now, what would be massive interest costs for governments, encouraging them to take on even more debt. By deliberately holding down interest rates, Canada’s central bank also depreciated the Canadian dollar, all in the hope of increasing exports. But there already are Canadian losers from the strategy: we end up paying more for imported goods as our debt soars, and new families are priced out of an over-heated housing market.

Does anyone truly believe rates will never rise? Then, interest costs on government and personal debt will rise sharply — squeezing out funding for public services, fuelling tax increases, and hurting families.

The distortions caused by rock-bottom interest rates already damage the living standards and economic stability of retirees relying on low-rate guaranteed investment certificates and Canada Saving Bonds. Not much attention has been paid to the plight of those folks — resigned to live on reverse mortgages, cutting back plans for travel and a new car and often unable to help their adult children.

Canada is not an island, events elsewhere can generate massive economic swings. Interest rates could easily double or triple and still be below historical levels. Inflation can spike up from a benign range of 1-3% to double digits, and the Canadian dollar can fall further pushing further up the cost of imported goods.

While advanced countries have played nice with each other, arrangements can be broken in the flash of an eye. Overnight, the value of the British pound fell 10% after a referendum signalled the UK abandoning Europe, while London’s commercial real estate is already down 20%.

Unlike its notoriously fiscally inept NDP predecessors, the Pallister government is more likely to understand the potential severe consequences of rapidly ballooning debt. It must not fumble its strong mandate to right Manitoba’s finances.

Debt represents risk, best to control its growth before it controls you.

— Graham Lane chairs Manitoba Forward (

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