credit and debt
03. credit & debt Conventional (economic) wisdom says that what you borrow you must pay back, a notion being challenged in these extraordinary times.
WHOEVER SAID DEFICITS MATTER DIDN’T GOVERN IN A PANDEMIC
While past federal governments have had differing political leanings and governed in a variety of unique economic epochs, the historical pattern of budgetary balances has been varied but consistent. In the 120 months preceding April 2020—spanning a period of governance that saw the Conservative and Liberal parties variously at the helm—42 were characterized by a federal budgetary surplus (35% of the time) and 78 were associated with a budgetary deficit (65%), with no one monthly deficit surpassing $14.8 billion and no one surplus exceeding $5.2 billion. So the fact that the government ran deficits in each of April, May, and June of 2020 is not particularly surprising; of note, however, is the magnitude of the deficits in these months. Perhaps the best way to frame the historical significance of recent federal government spending is to observe that the $120.3 billion cumulative deficit generated between April and June is effectively equal to the cumulative deficit of the preceding
106 months ($120.8 billion) combined. This is not to say the deficits aren't warranted—in fact, far from it. With Canada’s economy sailing into unparalleled headwinds, quick and meaningful decisions needed to be made in the early days of the Great Suppression in order to support households, businesses, and lower levels of government through what will ultimately be a transitory period of economic tumult. Expect deficit spending to continue on an unprecedented scale. In turn, expect questions to be asked about our collective ability to repay the accumulating debt. The future is uncertain on this point, though currently historically-low borrowing costs are likely to continue to prevail for years to come. This will soften the blow of a growing debt load and will present Canada with an opportunity to grow our economy out of the red.
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