Canada’s continued mismanagement of its finances could result in a significant shift in how our country is managed.
In our ever changing world the new buzzword is “disruption”.
Until now this has largely occurred in business.
The disruption that we are most familiar with is how Apple completely rewrote the rules on how music was distributed and listened to. For the music industry that was a game changer.
Another form of disruption that is occurring now is how the traditional taxi business is imploding because Uber has developed a better way to transport people.
Things change when the old ways no longer are the only ways. That has been going on since the beginning of time.
One of the major problems with Canada today is debt.
Federally we have borrowed close to $700-billion and Ontario is $300-billion in debt.
Health care and other financial benefits that are needed to support our aging population are underfunded. Plus our country’s infrastructure is getting old and needs replacing, not to mention our clogged highways, and commuters who are crying for better public transit.
The simple question is when will we have too much debt?
Our politicians know how to spend, but there is a gross lack of financial discipline that eventually could be the cause of our demise.
Will Canada be bankrupt and what is the mechanism that will cause our house of cards to come tumbling down?
The governance of our country is a three-pronged approach. The House of Commons, the Senate, and the Crown. Parliament drafts legislation, the Senate was designed to be the sober second thought and the courts have the power to strike down any laws determined to be ill-conceived.
This form of governance has served us well.
However, there is no assurance that it will continue to do so.
There are no checks and balances that control our spending.
From a financial perspective you can argue that the current system is no longer able to provide all the checks and balances that are needed.
As we have seen with disruption in business, new solutions to old problems happen very quickly. In my opinion, the power as we know it now could shift from the status quo to credit rating agencies.
A credit rating agency determines the safety or risk of a company or government. Creditors rely on that information in order to determine the level of interest rates to charge on loans.
If a credit rating agency downgrades the credit status of a province, or the country, then we will have to pay a higher rate of interest because lenders will see the loan as more risky.
Late last year one of the major credit rating firms downgraded Alberta’s credit rating because of its declining oil-based economy and ambitious spending plans announced in its provincial budget.
A few years ago a credit rating firm warned Ontario that if their budget was not fiscally responsible they would face a possible downgrade.
With this new reality the original purpose of the Senate, that was designed to provide checks and balances, could see a large part of that role shift to credit rating firms.
We are driving our country into a debt wall.
Our savior could be credit agencies that sound the alarm.