Should We Worry About Deficits When Interest Rates Are So Low?

Should Canadians worry about the level of government debt when interest rates are so low?

Yes. But the primary danger doesn’t come so much from Canada. Instead, it comes from the fiscal behavior of the US government.

There is a serious possibility that the US is on a fiscally unsustainable path. Canadian policymakers must take this possibility into account. At a minimum, the government needs to increase the duration of its debt, as I outlined in my recent lecture at the C.D. Howe Institute. Unfortunately, quantitative easing has moved Canada in precisely the opposite direction.