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Published Jan 10, 2024<\/span> \u00a0\u2022\u00a0 Last updated 16\u00a0minutes ago<\/span> \u00a0\u2022\u00a0 7 minute read<\/span><\/p>\n<\/p><\/div>\n<\/div>\n<\/source><\/source><\/source><\/source><\/source><\/picture>Two former heavyweights in Canadian politics, John Manley, left, and David Dodge, say the United States is staring down a fiscal crisis reminiscent of the one Canada endured in the 1990s. <\/span> Photo by Postmedia, The Canadian Press<\/span><\/figcaption><\/figure>\n<\/div>\n<\/header>\n\nArticle content<\/h2>\n Two former heavyweights in Canadian politics say the United States is staring down a fiscal crisis reminiscent of the one Canada endured in the 1990s, and could learn a thing or two from the difficult decisions its northern neighbour took to remedy it.<\/p>\n
David Dodge, who as deputy finance minister helped Jean Chretien\u2019s government steer the country out of a crisis fuelled by soaring deficits and debt-rating downgrades by using aggressive spending cuts and policy fixes beginning in 1995, said the U.S. must act quickly and decisively, even if it\u2019s politically risky or requires shaking up sacrosanct social programs.<\/p>\n<\/section>\n
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John Manley, who was in the Liberal cabinet at that time, agrees that U.S. lawmakers should act well before borrowing money becomes more difficult and expensive.<\/p>\n
The cost of servicing the U.S. national debt has already soared to the point where it outstrips hefty annual spending allocated to defence. Rising interest rates have helped push the debt-servicing cost to US$879 billion, a 23 per cent increase from a year ago, according to the Conference Board Inc. The situation signals to some that the country is facing a sovereign debt crunch such as the one Canada weathered in the mid-1990s.<\/p>\n
\nMarkets were losing faith, and so we were in real trouble<\/p>\n
David Dodge<\/p>\n<\/blockquote>\n
\u201cWe had the crisis,\u201d Manley said in a Jan. 8 interview after discussing the likelihood of a U.S. debt crunch and Canada\u2019s experience\u00a0on a webcast with Dodge and economist David Rosenberg of Rosenberg Research & Associates Inc. \u201cOnce you\u2019ve on a burning platform, it\u2019s best to get off it and we had a burning platform in 1994-95.\u201d<\/p>\n
A ratings downgrade on Canada\u2019s national debt in 1992, coupled with continued large deficits over the next couple of years, raised the spectre that the International Monetary Fund might need to intervene in the country\u2019s fiscal affairs as it had in the 1960s.<\/p>\n<\/section>\n
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Chretien\u2019s government, in which Manley served as industry minister, tabled a budget in 1995 that ushered in drastic steps to reduce both the deficits and the debt by scrutinizing whether government programs were affordable, efficient and necessary. It resulted in a significant downsizing of the public sector and spending cuts that affected most federal departments and programs, from transport and natural resources to defence, as well as transfer payments to the provinces.<\/p>\n
\u201cWe did things that not everybody in the Chretien government wanted to do,\u201d he said. \u201cWe had more opposition in our caucus than we had in Parliament (where the opposition Reform party was in favour of cuts).\u201d<\/p>\n
At the same time, Dodge said, Canada moved to address demographic-related funding issues with the Canada Pension Plan. It was unpopular, but put Canada ahead of the U.S., which is still dealing with politically contentious but necessary social security reform.<\/p>\n
\u201cIn about 12 or 13 years, it\u2019ll run out of money, so they\u2019ve got to fix that element,\u201d he said. \u201cAnd no one wants to touch it.\u201d<\/p>\n
Dodge said there are few signs the U.S. is prepared to address any of its debt and deficit issues.<\/p>\n<\/section>\n