credit and debt
03. credit & debt Throwing fiscal orthodoxy to the wind, the Canadian government has racked up debt at a pace unimaginable only 1.5 years ago. Should we be worried?
DON’T FRET THE MOUNTING DEBT
The latest deficit numbers for Canada’s federal government are not for the faint of heart. Since March 2020, the federal government’s monthly spending has outpaced its revenue by an average of more than $24 billion; at its peak (or trough, depending on how you want to look at it), the deficit reached $44 billion (in May 2020). Not sure how to feel about this? Context will assist in comprehending how large this number is: over the 132 months preceding the onset of Covid, the average monthly federal government budget deficit was $1.6 billion. We all know why we’re in this situation: Covid required extraordinary fiscal measures, at a time when economic activity reduced
government revenues, to keep Canadian individuals, households, and businesses solvent. Shock value of the Covid-era deficit numbers aside, the most meaningful question as it relates to government deficits is whether or not we are dooming ourselves to a future where we are encumbered by an out-sized public debt. To this point, historically- low interest rates, facilitated by Bank of Canada actions (they are purchasing much of the federal government’s debt), mean that servicing our mounting debt is affordable. And even as rates rise, the rise is likely to be modest, meaning the rate of economic growth will outpace our debt-service costs. In such a future, we will avoid the dreaded debt-spiral.
24
rennie.com
Made with FlippingBook - professional solution for displaying marketing and sales documents online