Could Canada be Headed for a Debt Crisis?
If your watching the news, you are no doubt aware of the quite extreme circumstances the United States find themselves in. They are right now, debating on increasing their debt ceiling, so they are able to borrow more money to make their payment obligations. Shockingly, there really isn't a debate that this should be done, its at what cost? Democrats want to increase the debt ceiling by increasing taxes to corporations and wealthy income earners while making some small cuts to government programs. Republicans want to increase the debt ceiling by cutting programs. At the end of the day, they are probably just rearranging chairs on the titanic. Either, way the United States has a problem with their perspective on money. They are always spending more than they bring in! No matter how this is accomplished, this is a very different attitude than Canada has regardless of which political party is in office, and a very typical attitude of any American Polictial Party. No matter what happens, the effect to the rest of the world by the United States' poor management of money will have negative effects on the global economy that is bound to touch every Canadaian's pocketbook. However, its important to note that the actual problems that the previous American Governments have had are not the situation of even the most fiscally irresponsible of Governments in Canada. Here is why.
1. You Have to Act Your Wage
When you need to get out of debt, what do you do? You cut back on expenses and you increase revenue. For governments, this can mean higher taxes and less services. Nobody likes either, but the reprocussions for not making these decisions is astronomical. The United States has an enormous deficit, and they regularly spend 30% more than they bring in. However, reducing the deficit or the debtload is not usually a cause of tension for either polictial parties in the United States. I mean, let's review, both parties want to raise the debt celing! This means that both people want to increase the credit card limit, they are just at odds at how to spend the money. In Canada, reducing the deficit is a hot topic of political debate at every election and question period. So, this means in Canada no matter which political party you are in, you want to get out of debt, there is just debate on how this is to be accomplished. This is a fundamental difference between the countries that greatly affect how money is managed.
2. Government regulations can be good
In Canada, we have government regulated mortgages through CMHC. This means that when you place less than 80% down on a house you must have it insured for default. This has created a more stable market and stricter lending guidelines. Also, Canada has a reduced amount of players in the banking industry. This means the asset base of Royal Bank, TD Canada Trust, Bank of Montreal, etc are signficatlly larger than the assets of any american bank. Also, our banks have quite a lot of government intervention, so they have been watched closely, as opposed to their US counterparts. Also, we do have more programs that are under government control, and although I don't claim to be a socialist by any means it is a positive in this situation.
3. Its' all about the people
I don't mean to knock our southern neighbours, but the truth is how they think of money is very different. Credit is easier to get, and there is a lot of more options on what to spend on. In Canada, credit has always been a bit more difficult and traditionally canadians have saved more money. This means that the financial position of the average canadian is higher than most americans. I' m sure the fact that we don't pay big medical debts probably contributes to it. In a nutshell, Canadians and Americans think differently about money, and we both get exactly the financial situation that we think about.
So, is Canada headed for a debt crises.?I doubt it. But I could be wrong. The real question, is are you headed for a debt crisies? Now, is the time to increase your financial intelligence and look at ways to increase your wealth and decrease your liabilities.