In a recent Bloomberg article, Desjardins data shows that Canada is heaping on short term debt to fund the profligate spending of the Trudeau Liberals.
That debt will come due in the next term of Parliament and with Trudeau booted out of office it will likely fall to Pierre Poilievre to find a way to refinance or repay the massive federal debt. With rates for longer terms and for shorter terms just about the same in the 4-5% range, failure to lock in current rates exposes Canada to the risk of refinancing at even higher rates.
Freeland is gambling that by borrowing short term (even at higher rates) the level of rates will fall before refinancing becomes necessary and be able to replace the debt with lower cost debt when it matures. She ignores the level of deficits that will need to be financed under the Trudeau regime which will “crowd out” any ability to refinance at lower rates and may even force the market rates higher as too much supply meets too little demand for Canadian government paper. The Canadian dollar has dropped from par against the U.S. in 2012 to about $0.72 today (although it has been pretty stable during the Trudeau years beginning 2015) - and foreign investors may be a bit shy about the currency risk, particularly when U.S. Treasuries offer higher rates than Canada bonds. The spread between U.S. 10-year bonds and their Canadian equivalent has widened since 2015, which I am sure the Trudeau government will attribute to confidence in the Canadian currency and economy, but is in reality more likely a reflection of Canada’s high savings rate and stable banking system, both of which are now coming under pressure. Foreign investors may shy away from committing to a 10-year investment that yields 75 basis points less than its American counterpart unless they can be persuaded the Canadian dollar will strengthen relative to the U.S. - a tough argument when Canada’s government spending is out of control and its vital energy industry is still under the thumb of the climate nutters who comprise the majority (if not all) of the members of the Liberal party in power.
The fiscal 2023 government financial report discloses that Canada has $1.6 trillion of interest bearing debt.
The same report discloses that interest paid on that debt in fiscal 2023 came in at $35 billion, up from $25 billion the prior year, an effective interest rate of 2.1% in 2023 and 1.6% in the prior fiscal year. The fun is just beginning. Interest rates today on Canadian government debt is in the 3.7 to 4.6 percent range according to Bank of Canada data. Freeland is issuing debt at short term rates 80-90 basis points higher than longer term rates, evidence of her bet on rates falling.
Leave aside a Minister of Finance who trained as a journalist gambling in debt markets with taxpayer money, what is clear is that the cost of the $1.6 trillion of debt is rising (actually doubling) and the interest on Canada’s debt will very likely shoot up to the $70 billion range in the next year or two if Ottawa keeps debt at current levels. Unikely, given the Liberals penchant for buying votes with claims “we have your back” while decimating the country’s balance sheet by giving billions to foreign companies to build EV battery plants in Canada. These plants likely will become “white elephants” as the world begins in acknowledge that the “EV revolution” is going to be a lot slower than advertised and that in addition to consumer reluctance to pay up for even a subsidized EV, the shortages of metals exacerbated by Trudeau environmental policies (and those of Biden and European leaders) make rapid growth in EV production a bad gamble.
Total federal revenues are running about $400 billion. With interest charges on the way to eating up $70 billion or more, programs will need to be cut or taxes raised to keep Canada from a debt crisis or even a default.
This is an ugly picture for Canadian voters already facing food price inflation, rising mortgage rates, and unaffordable housing. It will get uglier if we don’t get rid of Trudeau and elect leaders capable of actually running the country. It would be nice to have a Prime Minister who understands economics and yes, even monetary policy.
I have a lot of friends who love Trudeau and are died in the wool Liberals. When the economy comes crashing down, they will have no one to blame but themselves.
Liberals never blame themselves, they will still be blaming Harper and Mike Harris
Our Journalist is taking on risk by financing a long-term problem with short term debt. That mismatch can bite at the worst time.
I’m hearing from Liberal consultants that the problem has been wonderful Liberal progressive programs, financed with a Harper tax structure. In other words, they are advising, our Journalist increase taxes to cover the wonderful Liberal programs.
What these consultants don’t acknowledge is that taking more taxpayer money out of the economy, and dumping it into the hands of bureaucrats will shrink our economy at a time when the only way out of this mess is optimizing growth.
These same sock festish lovers (mostly boomer) also hates Trump, go figure.