Stop spending lavishly and beyond your means and start paying down your debt.
That was the no-nonsense message and warning that Wellington Halton Hills MP Michael Chong brought to the Fergus Elora Rotary Club on Feb. 22.
Chong reviewed the economy of the previous two years and credited the Liberal and Conservative Parties for their economic policies of the past as one reason Canada weathered a world wide recession better than almost any other country.
“We are in the fortunate position we are in today because the governments of the past 10 to 15 years were prudent,” he said.
Chong told club members, “Many have said to me that it doesn’t feel like a recession.” He credited the Conservative’s economic action plan, which saw the federal government spend about $60-billion on infrastructure projects to keep the economy stimulated during the worst of the global recession. He said Canada has emerged as the strongest of the G7 nations economically.
The government also extended Employment Insurance benefits to help families when those benefits were running out. He was pleased to learn Canada had created 69,000 jobs in January, and the economy has been growing over the past three months. He added 100,000 businesses will benefit from coming tax cuts, and that is designed to create more jobs.
But, Chong said, Canadians and their government must continue to look ahead in order to weather some economic shocks – and events around the world are “interconnected.”
He warned that Canadians are going to see higher energy prices. The revolts in the Middle East, with the Arab world currently busy removing entrenched governments, has already caused the price of oil to go up.
“We are going to be paying a lot more for heat and energy,” he said. “Householders need to repair their balance sheet.”
Meanwhile, countries such as Greece, Ireland, and Portugal are struggling with debt, and that has implications for the Euro.
And finally, there is a serious trade imbalance because of Asian countries undervaluing their currencies, and Chong believes that will cause inflation and cause interest rates to climb.
As well, when fuel costs go up, so will the cost of food, which, he suggested, will be much higher than it has been.
Under one question, he said the national debt is currently $500-billion, but he sees that as sustainable. He said governments can borrow for up to ten year periods, and the federal government is paying low rates right now, and it expects to eliminate the federal deficit within five years.
But, he said, a far more serious debt is the personal one being held by Canadians – $1.5-trillion. He said Canadian households have been spending nearly $1.50 for every dollar that they earn – and there will be huge shocks when such things as mortgages suddenly jump. He explained that is one reason the federal government recently tightened mortgage regulations.
He said the United States is faced with the problem that one in ten houses has more mortgage attached to it than it has value, and people there are walking away from those homes. When that happens, prices drop.
He said Canadians need to save more, and spend less, using the same values that built Canada, those of the pioneers, where “thrift and hard work” made Canada a great country.
When asked about the United States’ problems, Chong said its government spends far more money than it takes in, even in relation to the Canadian federal government. He said Canada’s debt compared to its gross domestic product is 25% of that of the United States.
As well, Canada increased its pension plan premiums and is now ensured that funds are there for the next 75 years. That did not happen in the United States, leaving a huge liability as millions of baby boomers head into retirement.
But,he noted, Americans are now reducing debt like that on their credit cards, and they are starting to save more.
As for us, “Household debt in this country is the greatest threat to the Canadian economy. It’s unsustainable to continue growing household debt the way we have been.”
He said 20 years ago, household debt was half what it is today, and the difference between the government being in debt and a householder is that householder does not have any sovereign power, cannot levy taxes, and cannot set policies or gain favourable interest rates like a country can.
“If we don’t [control household debt] we are putting our entire economy at risk – like in the U.S.,” he said.
Another questioner wondered if people stop spending, will that halt economic progress, which is dependent on spending.
Chong admitted it is a balancing act, and ceasing all spending would also cause problems.
He said people have to be “self-regulating” and noted that all the government can do is “encourage.”
He said that is taking the form of stricter banking standards for cash on hand, encouraging banks to lend to businesses.
“We’re doing the opposite with households,” he said, where the government is encouraging thrift.
