Federal debt

The weekly editorial for the editor of the 100 Mile Free Press.

A response to George Wilby’s letter to the editor printed March 23 in the 100 Mile Free Press.

Generally speaking, when a government issues debt, anyone can buy them (and subsequently sell them to others).

Debt can be further divided into two categories: debt payable in Canadian currencies and debt payable in foreign currencies. Sometimes countries will issue debt in foreign currencies (i.e. U.S. dollars) to get more foreign currency.

In terms of the Canadian federal debt, a very small portion, comparatively speaking, is payable in foreign currencies (22.5 billion compared to 647.2 billion in Canadian currency in 2016 according to the Debt Management Report 2015-2016).

In terms of who currently owns the debt, here’s a rough breakdown:

“As [of] March 31, 2016, domestic investors (including the Bank of Canada) held about 70 per cent of Government of Canada securities … Among domestic investors, insurance companies and pension funds held the largest share of Government of Canada securities (28.0 per cent), followed by financial institutions (25.6 per cent) and the Bank of Canada (13.7 per cent).

Taken together, the top three categories accounted for over two-thirds of outstanding Government of Canada securities,” according to the Debt Management Report 2015-2016.

As for your other question, debt doesn’t always have to increase. In fact, looking at the history of the Canadian federal debt, there’s a good example. Between 1998 and 2008 the federal debt decreased by over $100 billion (debtclock.ca).

The debt doesn’t have to be paid off but the higher the debt is the more taxpayer money each year goes towards paying the interest on the debt, as opposed to healthcare, infrastructure, education, defence etc. The other thing is that if ever investors started to believe the federal government wouldn’t be able to pay off the debt or keep up payments it can have significant long-term negative effect on the economy.

Something I find quite interesting is the federal debt plotted by prime minister (as determined by debtclock.ca, excl. 2015):

Diefenbaker (C): $9.5 billion (1957) – $12.7 billion (1963)

Pearson (L): $12.7 billion (1963) – $14.3 billion (1968)

Trudeau (L): $14.3 billion (1968) – $46.6 billion (1979)

Joe Clark (C): $46.6 billion (1979) – $60.1 billion (1980)

Trudeau (L): $60.1 billion (1980) – $129.8 billion (1984)

Turner (L): $129.8 billion (1984) – $136.8 billion (1984)

Mulroney (C): $136.8 billion (1984) – $453.0 billion (1993)

Campbell (C): $453.0 billion (1993) – $459.2 billion (1993)

Chrétien (L): $459.2 billion (1993) – $507.3 billion (2003)

Martin (L): $507.3 billion (2003) – $492.8 billion (2006)

Harper (C): $492.8 billion (2006) – Approx. 610-615 billion (2015, can’t find the number for the exact date)

Now we’re looking at this in a vaccuum, but I find two things really interesting here: daddy Trudeau, at least proportionally speaking, massively increased the federal debt and, despite their reputation as being “financially responsible” Conservative prime ministers, such as Mulroney and Harper also added massive amounts of federal debt.