Quebec: Canada’s debt bomb
(By MICHEL KELLY-GAGNON) One argument that seems to have caught the fancy of big government supporters in the province is that we not only have big debts, but also big assets. They note that someone with a mortgage of $500,000 is not in trouble if his house is worth $800,000. Quebec owns vast swaths of land, roads, hospitals, schools, hydro dams and countless other resources that can be used as collateral. There’s some truth in this — but only up to a point.
It’s easy to sell your house if, for some reason, you need cash to meet your financial obligations. But most assets owned by Quebec cannot readily be sold. There is simply no market for many of them. And in cases in which it would be feasible and make sense — selling Hydro- Quebec for example, or the liquor monopoly — there is no political support to do it.
Practically speaking, the debt will have to be paid back with taxes, from a dwindling proportion of working taxpayers.
Which leads us to a second problem. A homeowner’s equity is not going to be any help if he loses his job or if interest rates suddenly go up and his monthly payments become unaffordable. The cost of servicing Quebec’s debt will go up by more than 10% next year. That’s at a time when things are relatively easy for debtors. We are in a period of historically low interest rates, artificially engineered by central banks madly printing money to keep their economies afloat. This is not going to last forever.
Les apôtres de la dette nette risque de réaliser tôt ou tard que la dette est… brutale !