Yahoo Finance Ex-BoC boss warns US$34T debt puts America 'up against the wall'
A trio of Canadian economic heavyweights is sounding alarm bells over America’s record-breaking US$34 trillion national debt.
Former Bank of Canada governor David Dodge, John Manley, a former deputy prime minister and finance minister, and economist David Rosenberg, say the situation recalls this country’s brush with soaring deficits in the 1990s.
“The U.S. is getting very close to running into a situation where they are up against the wall, just as we were at the beginning of the 90s,” Dodge said in a recent online panel chat hosted by Rosenberg Research. “The U.S. has to now work to preserve confidence in the U.S. dollar that they didn’t before. And I think this changes the game.”
Data from the U.S. Treasury Department show America’s national total outstanding debt eclipsed US$34 trillion for the first time on Dec. 29. The bipartisan Peter G. Peterson Foundation estimates the U.S. government spends nearly US$2 billion per day on interest payments, a figure that could reach US$3 billion per day by 2032.
“The issue is not the debt,” said Dodge. “The issue is your ability to service the debt.”
Dodge served as Bank of Canada governor between 2001 and 2008, and previously held senior roles in the Department of Finance. He was appointed deputy finance minister in 1992.
That was the year Canada received its first international credit rating downgrade. By 1994, $0.34 from every tax dollar collected went towards interest on debt, according to the Fraser Institute.
A combination of spending cuts and tax hikes produced a balanced budget in 1997 under then prime minister Jean Chrétien’s Liberal government.
Manley was deputy prime minister under Chrétien in the early 2000s. Today, he’s concerned by the overly partisan tone of ongoing debates on the U.S. debt ceiling.
“Mr. Chrétien was masterful . . . at getting what I would call the spenders in the room and building on that consensus. Because without consensus, there can be no move forward,” Manley said.
“Bipartisan consensus is hard to find,” he added. “Looking for some kind of consensus in the U.S. is terribly important, because the world is not getting easier. It’s getting more difficult.”
Rosenberg describes the U.S. national balance sheet as “spinning out of control” as the world’s largest economy heads for an election in less than a year.
“US$34 trillion of government debt, if left unchecked, that’s going to go up at least US$12 trillion in the next eight years,” he said. “That doesn’t even include the possibility of recession. These numbers are going to go through the roof.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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