Quote:
Originally Posted by Enoch Root
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.
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Its not that cut and dried regarding interest rates though. We've seen high borrowing through the late 2000's and rates were cut. The reality is there are a lot of factors that go into the central bank setting the overnight rate. There are obviously drawbacks to increased borrowing, and I'm not denying that, but 21% overnight rates isn't a definitive outcome either.