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A world awash in debt Montage by Daid Lucas The Globe and Mail
The financial crisis provoked a global front to stimulate economies through massive spending. But this was fuelled by a staggering amount of borrowing. Now governments are realizing that a new calamity looms - higher taxes and slashed social programs
Kevin Carmichael
Ottawa — Globe and Mail Update Published on Friday, Nov. 27, 2009 7:29PM EST Last updated on Monday, Nov. 30, 2009 3:09AM EST
For 220 years, through civil upheaval, global conflict and a depression, the United States largely kept its public debt under control.
But the world's largest economy may finally have met its match. In its bid to prevent the Great Recession from spiralling into a global depression, the U.S. government spent tens of billions rescuing financial institutions and automotive companies. In the process, the federal budget deficit swelled 220 per cent from 2008 to a record $1.6-trillion (U.S.).
The world's biggest economy has plenty of company: Seven of the members of the Group of 20 nations are on a trajectory that will leave them with debts bigger than 75 per cent of their economies by 2014, according to the International Monetary Fund.
It's hard to understate the fiscal cost of the financial crisis, which continues to send shock waves around the world. This week's move by Dubai World, a state-owned conglomerate that fuelled the United Arab Emirates' rapid growth, to withhold debt payments shows the financial crisis continues to put government finances at risk.
Even in Canada, a relative paragon of fiscal prudence, the combined gross debt of the federal and provincial governments is on pace to reach 79 per cent of gross domestic product next year, compared with 64 per cent in 2007.
The numbers are staggering. But as the dust settles from the financial meltdown, policy makers are slowly coming to grips with the fact that a long battle with deficits and debt is only beginning.
The immediate threat posed by economic calamity allowed them to forget about a reality that's been staring them in the face for years: The baby boomers are about to blow the budget.
U.S. President Barack Obama is feeling the most pressure these days.
One of the reasons the U.S. dollar has slumped this year is that investors lack confidence that the President and Congress are up to the challenge of restraining a long-term fiscal crunch that makes reducing the current deficit look routine.
Consider this: If the U.S. government was to slip into neutral today, allowing Bush-era tax cuts to expire and inflation to push many of the middle class into higher tax brackets, the country's debt would climb to about 300 per cent of gross domestic product over the next seven decades, according to the Congressional Budget Office.
Tweak that forecast for the political and demographic reality – the extensions of many of those tax cuts and higher payments to doctors as the population ages – and the CBO's model predicts the debt-to-GDP ratio would approach an astonishing 800 per cent over the lifetime of an American born this year.
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Credit Canada's Laurie Campbell talks to Rob Carrick about specific steps to get your debt under control
More stories attached to this video Got a debt headache? You're not alone How to tackle your credit woes Join the Discussion:Sorted by: Oldest first Newest to Oldest Oldest to Newest Most thumbs-up Related Information Derek DeCloet: Climbing out of debt hole won't be easy Friday, Nov. 27, 2009 07:48PM EST Ottawa heads for historic deficit Friday, Nov. 27, 2009 12:33PM EST Current account gap balloons Friday, Nov. 27, 2009 08:59AM EST Weak growth delays Flaherty attack on deficit Friday, Nov. 20, 2009 07:55PM EST Canadian recovery on track, U.S. dollar safe, Carney says Thursday, Nov. 19, 2009 06:01PM EST Liberals in bind over HST motion Friday, Nov. 27, 2009 01:13PM EST Canada gets boost as exports to U.S., Europe rise Saturday, Nov. 14, 2009 12:00AM EST Is stimulus money going to right regions? Wednesday, Nov. 11, 2009 02:07PM EST Video: Let's Talk Investing : Hitting the wall with credit troubles? Friday, Aug. 07, 2009 10:04AM EDT Jobless rate jumps to 8.6 per cent Friday, Nov. 06, 2009 07:05AM EST UAE to back banks amid Dubai meltdown Sunday, Nov. 29, 2009 03:22PM EST Latest Comments $.namespace('art'); art.allowComments = true; function joinComment(){ var targetOffset; targetOffset = $("#tabs").offset().top; $('html,body').animate({scrollTop: targetOffset}, 600, function() { $('#article-tabs').tabs("select",'comments'); }); return false; } function showCommentsTop(){ var targetOffset; targetOffset = $("#tabs").offset().top; $('html,body').animate({scrollTop: targetOffset}, 0, function() { $('#article-tabs').tabs("select",'comments'); }); return false; } $(document).ready(function() { $("#alert-close").click(function() { $("#alert-form").hide(); }); var latestCommentsDisplay = $.cookie('gam.art.latest-comments-display'); if (latestCommentsDisplay != null) { if (latestCommentsDisplay == "block") { $('#latest-comments h4.toggle').removeClass('close'); } $('#latest-comments-content').css({'display': latestCommentsDisplay}); } $(window).unload(function() { var display = $('#latest-comments-content').css('display'); $.cookie('gam.art.latest-comments-display', '', { expires:-1}); $.cookie('gam.art.latest-comments-display', display, {expires: 365, path:'/'}); }); }); aPs="boxr"; var boxrAC=fnTkt('a'+'ai',300,250,ai,'j',nc); document.write(boxrAC); Video Hitting the wall with credit troubles?Credit Canada's Laurie Campbell talks to Rob Carrick about specific steps to get your debt under control
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