November 28, 2009

WORLD: A World Awash in Debt - A View from Ottawa

. TORONTO, Ontario, Canada / Globe and Mail / / Report on Business / November 28, 2009 Breaking News A world awash in debt 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 By Kevin Carmichael Located in Ottawa, Kevin Carmichael writes about economics and economic policy for the Globe and Mail. OTTAWA — 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. [rc] To continue reading, click here © Copyright 2009 CTVglobemedia Publishing Inc