Is Canada the new Argentina?

Some troubling news on the web today. Canada is now issuing debt denominated in euros. Also earlier this year Canada borrowed money that must be paid back in US dollars.

This is terrible news. When a country starts issuing its debt in the currency of other nations it is basically screwed. This is what led Argentina and Weimar Germany to ruin.

It doesn't really surprise me though. I remarked on this earlier around Harper's visit to China. I am very concerned about Canada's ability for the federal government and the provinces to find lenders willing to lend us the money to finance the staggering federal and provincial defecits. Now the picture becomes a bit clearer. Foreign creditors are insisting on being paid back in their own currency.

There are so many problems with foreign denominated debt. The biggest of course is that we can't control future exchange rates. Today the CDN dollar is presently high. When it drops in the future the costs of making payments in US $ and euros will skyrocket; even though the principal is the same. This is the same disaster as the Halifax Mackay bridge fiasco which was financed in German marks. Now that disaster may play out on the entire nation.

Another big problem with foreign denominated debt is that the government in a pinch cannot just monetize it. For example if I am holding a Canada savings bond that matures in say 5 years. On that day the government could if it had to make good the amount by just printing the money and giving it to me hot off the printing press. That would be bad for the nation as a whole but at least we would be able to control our own fate. We can't print foreign currency.

Speaking of defecits today it came out that the Nova Scotia provincial government is presently running a defecit of around $1.5 million a day. Against this backdrop we are facing two major civil service strikes [health and education] next week. Great timing there government unions; way to help out your NDP friends now in power.

The insanity of a sovereign borrowing in other nations currency must end. It would be better just to bite the bullet and limit government borrowing to what we can raise in Canadian dollars. Cap the defecit at that amount; or print the difference and deal with the consequences. Foreign denominated national debt may be the greatest threat to the Canadian way of life as we know it.