Railroads are usually associated with Canada’s “National Dream”, but they can also serve as a good metaphor for a national debt nightmare.
Imagine this: you’re tied down to a railroad track, and not far away you can see a lumbering freight train of national debt. It’s slowly picking up speed and headed straight towards you.
Horrified, you suddenly notice the train’s conductor is leaning out the window– it’s Prime Minister Justin Trudeau, taking a selfie. Right behind him is Finance Minister Bill Morneau, sleeves rolled up, throwing shovelfuls of taxpayer money into the engine.
You want to get up and flee but you can’t; you’re strapped down by your own credit card, bank, mortgage and home equity debt. And, if you’re at the level of the average Canadian in terms of indebtedness, you also have less than $200 in savings, and have $1.70 in debt for every $1.00 in income.
But wait – the nightmare gets worse.
Any hopes you have of surviving this ordeal appear quashed when you notice red lights flashing alongside the tracks. These are warnings from banks and think tanks who are forecasting economic trouble ahead. Some are even talking about a recession.
Oddly, Conductor Trudeau doesn’t seem the least bit concerned. Shouting from the window of the train, he pulls the whistle and shouts, “Things are fine. Canada’s debt to GDP ratio at 34% is close to historical lows. Full speed ahead, Bill – throw some more cash on those coals!”
Let’s not stretch this metaphor too far, but let’s take a hard look at what we’re
witnessing in Ottawa today, which is a minority government trying to spend its way back to majority status.
In the recent Throne Speech, Prime Minister Trudeau’s promises of spending on housing, seniors, parents, primary health care, infrastructure, Indigenous communities, business and community subsidies are all laudable – if all goes as planned.
And yes, our ratio of national indebtedness has been stable: since the 2008-2009 recession, fluctuating around a range of between 31.4% to 38%; today it sits at 34%.
But what happens if things go awry?
Keep in mind, our debt to GDP more than doubled over ten years from 25.5% the start of the 1980 recession to 55.1% in 1991 and then took another hike to a peak of 68% in 1995-96, when Canada was essentially an economic basket case.
Back then, The Wall Street Journal called Canada “an honorary member of the Third World”.
Things were so bad, Jean Chretien, who was Prime Minister at the time, would recall later that Canada risked being “the Greece of today”.
Chretien’s government was forced to make massive cuts to social program, defence, foreign aid and closed off tax loopholes. The only groups spared were seniors and tax collectors.
It wasn’t pretty. But it worked.
And make no mistake, the same thing would happen again if our debt to GDP ratio soars during an economic slowdown – and the pain would be felt most on Main Street, where average, middle income Canadians are barely keeping their heads above water, even in a strong economy.
Also, hard-hit would be millennials, most of whom have never seen a stock market correction, never been through a recession or never seen a progressive, spending agenda hit the walls of economic reality.
But the worst pain of all would be felt in the West. The resource economies of Alberta and Saskatchewan have already been hard hit by onerous regulations and by delays in pipeline approvals. A federal debt spiralling out of control would wreak even more havoc on the Prairies.
Only one thing can stop this debt train wreck scenario from becoming reality. And that is a federal government that stops stoking the debt train’s engine.
With the Trudeau-Morneau tandem in the lead engine, don’t hold your breath.