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Originally Posted by mrkajz44
While the $30B deficit number is a bit of a surprise to me, I'm not that concerned overall. Personally, I think the Debt to GDP ratio is much more important than just a deficit / surplus number. Here is a Debt to GDP ratio chart for Canada:
We've come a long way from the mid-90s and even with these deficit numbers projected, we are actually still looking to be in good shape going forward. Couple that with the fact that GDP growth was very conservative in the budget and could actually grow much more than anticipated, I'd say the deficit is not as bad as everyone thinks.
I think people have to remember that a government budget is very different that a personal budget. If I am personally spending more than I earn, I'm doing something wrong. But a government can effectively run deficit budgets and have it be a good thing. Government earnings will continue to increase over time, while personal earnings plateau and then drop off. That's a key fact that is often overlooked.
If Canada's economy continues to grow, then it doesn't seem unreasonable to have debt grow at a similar rate as well, especially when times are tougher. It's sort of like a corporation. Notice that some of the biggest company's have large amounts of debt on their balance sheets. As the company gets bigger, their debt loads tend to grow as well. The banks are fine loaning the money so long as debt ratios are met, similar to debt vs GDP ratio for the government.
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Conversely, difficult macro-economic shocks could hit again (like in 2008) and then what?
With the government already spending like drunken sailors, there is little in the tank for the kind of deficit-stimulus spending that would then be required.
Also, you are assuming better growth, but you are not assuming new spending. Is that a reasonable set of assumptions considering what we have seen so far from this government?
Trudeau is so far looking just like his dad - completely oblivious to fiscal responsibility.
For those that weren't around and don't know, it was Mr Trudeau that brought big deficit spending into vogue. It was Mr Trudeau that created the massive debt-load that his own party eventually had to to address.
Here's another tidbit for those of you that weren't around the first time...
Larger deficits, and more importantly, larger debt to GDP ratios, result in higher interest rates.
Take our high housing prices, and the resultant large mortgages that we carry on them. Add in our historically high net personal debt levels.
Now, overlay that with higher interest rates, and try to imagine how that plays out.
In 1981 (I think was the peak), mortgage rates hit 21%. A VERY large percentage of people who's mortgages came up for renewal had to simply walk away from their homes because they couldn't afford the new mortgage rate.
Unbridled spending is a sure-fire recipe for disaster.