In September 2020, Justin Trudeau presented his vision for Canada’s recovery after the shock of the first wave of the pandemic. Mr. Trudeau, a natural spendthrift, set out his intention to continue to pump public money out in full force, obviously with a large share of borrowed funds.
This throne speech contained a line that made me jump and write a rather critical column. Our Prime Minister declared that governments can “do more” by “keeping the cost of borrowing low for decades to come”. (You understand that in the words of Justin Trudeau “to do more” is synonymous with spending more.)
In short, Justin Trudeau’s recovery policy can be summed up as follows: the government will inject, without reserve or caution, a lot of money into the economy. To do this, he will borrow heavily on the assumption that interest rates will remain low for decades.
Two years later, this policy must be judged as a serious failure.
Cascade of problems
First, the exaggeration in the injection of public funds into the economy contributed to inflation, which was to be feared. Inflation eats away at purchasing power and acts like a cancer in the economy in many ways.
The fight against inflation forces the Bank of Canada to raise its interest rates. Whoops ! The prophecy of the Speech from the Throne on very long-term low interest rates has just taken the edge!
Yesterday, in these pages, Michel Girard explained to us in very clear terms to what extent the rise in rates means an explosion of interest payments for our governments. When you’re dragging such huge debts, every extra point of interest is very expensive.
What recklessness! How could a government make such a futile prophecy and enshrine it in a Speech from the Throne as the basis for its actions?
Predicting that interest rates will remain low for decades is like trying to predict the price of a barrel of oil five years from now or predicting the kind of season Canadians will experience in 2035! This must be put in the same category as the Inca prophecies of the end of the world.
We are going to pay
The average citizen will pay in many ways for the overspending, for the inflation that followed, and for the resulting rise in interest rates.
All citizens have lost purchasing power on their dollar. Older people who have saved for their retirement see the value of all their savings melt away.
Mortgage holders will pay monthly for the higher rates.
As taxpayers, a larger share of our taxes will go to paying interest charges rather than utilities.
And we are all at risk of experiencing a recession in the coming months.
Pierre Poilièvre’s criticisms of Justin Trudeau’s management of the economy are very severe. For a good part, they are deserved.