How the National Debt Works

We sometimes hear about how Canada’s debt is over $600 billion, and it’s going to hit new highs in the next couple of years, and how it’s so unfair to leave all this massive debt to future generations. But I don’t think it’s that big of a deal. I’m sure in the 1980’s when our parents were younger, they were scared to think about having to pay back around $300 billion of national debt. But 3 decades later, they turned out just fine, well most of them anyway. Canada turned out okay 😀 and the debt is STILL there, in fact, the country’s debt has pretty much doubled during that time.

Canadian national debt

Based on CPI data from Stats Can, most things costs twice as much today as they did 25 years ago. You can use online calculators to see how much $100 basket of goods in 1980 would cost in 2005, for example. And between 1980 and 2005, the median income of all economic families of two or more people increased 11.1% in 2005 constant dollars. That means most household incomes have beat inflation over time.

So if we’re making twice as much money, and our assets (eg: houses, stocks, etc) are also worth twice as much, and we’re spending twice as much on stuff, then relatively speaking if our debt is now also twice as high ($600 billion), did it really increase from before in real economic terms? The only thing that’s changed is the money supply we have in the system. Every dollar back in the 1980s only has the same effective value as 50 cents today :0) So that’s why our national debt may look bigger, but may not feel bigger.

I don’t see the problem of handing down all this debt to our future children either because they’re just going to do the same to THEIR children. Why not? Every other generation before them has gotten away with it lol :0)  But what’s good about our national debt is that most of it’s owned by Canadians.  Mutual funds, pension funds, and even the CPP is invested in our national debt. For example OMERS, a company that manages and invests people’s retirement money in Ontario, might have bought $1 million of Canadian debt. That would mean they lent the federal government $1 million. So the beneficiaries of this $1 million once the debt is repaid is the hard working municipal employees of Ontario. About 75% of the $600 billion debt is owed back to Canadians this way. So our net debt to people in other countries is only a fraction of the total number.

But if anyone is still concerned about government debt and wants to feel accountable for racking up so much IOUs, luckily there is a way you can pay your fair share of our national debt. There are about 35 million people in Canada, so on average each person’s share of the national debt is about $17,000. That means you can just buy federal debt, such as Canadian Savings Bonds, either through your bank or a trusted broker, and the government of Canada will literally owe you $17,000, or however much you buy. In other words, you will become one of the many beneficiaries of that $600 national debt 😀 By owning what you owe, you essentially don’t owe anything. As far as the national debt is concerned, you will be debt free :0) However I am not certain this logic is sound because you would be paying off debt with more debt, haha. But hey, that’s the kind of world we live in (^v^)

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The Loonie Bin
The Loonie Bin
12/30/2012 3:12 pm

In a perfect world, I would gladly pay $17,000 to pay my share of the debt so it would be gone forever but….

The government would just keep spending like morons and rack up the debt again. It’s like we’ve elected ignorant teenagers and gave them access to the pin of our credit card.

What really gets me is that Ottawa has the nerve to TELL US to watch our spending and stop going into debt when they can’t even do it themselves. Forshame!

Not Working
Not Working
01/03/2013 9:00 am
Reply to  The Loonie Bin

Would do the same, i wish everyone would contribute and get that debt down to 0

Glen @ Monster Piggy Bank
12/31/2012 5:36 am

The problem is that for everything to keep happening smoothly the worlds population has to keep growing. Obviously there is a fixed limit on the number of people in the world and so at some point it is going to be impossible for all that debt to be paid back.
If you have a spare hour I strongly recommend you watch this you tube video – it explains it better than I ever could.

12/31/2012 5:42 am

People tend to think of Goverment debt in the same light as personal debt but it’s better viewed like corporate debt. It’s a tool that can be used to increase the value of the company. For example borrowing money to upgrade the Canada/US bridge, 600 million I think, Money well spent.

12/31/2012 10:23 am

I may be talking out of my ass but I thought I had read somewhere that private American citizens can pay a direct payment towards their country’s debt. I wonder if that’s the same in Canada? I don’t think I would, but interesting to think about.

01/02/2013 7:08 pm

You can do so directly through your tax return.