We can’t keep kicking debt can down the street

Alberta borrowing billions and when interest rates rise, it won’t be pretty

There inevitably comes a reckoning for kicking the can down the road.

Half a century ago, it was ferocious lectures from my mother (an undoubted expert in that particular genre of communication) that always concluded with the phrase, “do you think we’re made of money,” after she’d discovered yet another pair of shoes with holes in the toes.

I would blame my rapidly growing feet for this regular predicament, but she sensed the real culprit — the childhood street game, kick the can. As explanation for those under 50, this resembled hide and seek with the bonus of being able to free those already caught by kicking an empty tin before the poor sap looking for the entire gaggle of hidden youngsters could escape his dreaded turn by tagging everyone out.

These days, the game — along with all its street-corner cousins — remains nothing but a vague memory. Mothers, instead, can now harangue their offspring about the dangers of endlessly playing the latest version of Grand Theft Auto, although that’ll only wreck their minds and not their shoes.

Still, I can’t avoid a small tingle of nostalgia (soon, it may be the only tingle left) whenever I come across that phrase. For, despite the disappearance of the street game version, kicking the can down the road hasn’t died. Not in the slightest: in fact, the economic version is a national pastime.

Yes, we’re talking about our propensity, individually and collectively, to live ever deeper in debt. There’s a reckoning on the horizon with the role of the exasperated mother now being played by the U.S. bond market.

Inflation is making a comeback as yields on those bonds — probably the most important collective rates on the planet — increase. That rise will eventually play out across all the various debts we incur on this side of the border, from lines of credit, through mortgages, to car and student loans, all the way to credit card balances.

And boy, do we Albertans love our debt. A recent survey showed almost half of us — 46 per cent — said they were within $200 of not being able to pay their bills each month.

“The results highlight just how financially vulnerable Albertans are. Small interest rate increases result in escalating financial strain and anxiety across the province,” said Donna Carson, a licensed insolvency trustee with MNP, who carried out the survey. Ouch.

And that was before the latest increases in interest charges began taking hold.

Of course, we are all guilty of the psychological phenomena of assuming what we see is what we’ll get — in this case, imagining loan rates will forever hover below the five-per-cent mark and believing the idea they could ratchet up to twice that level is patently ridiculous. Well, ask someone who carried a Calgary mortgage back in 1982 what rate they were paying and prepare to quiver.

Yet, when it comes to borrowing money, what we as individuals can do, our elected representatives can do way better.

Take, heaven help us, the current provincial government’s borrowing binge under the less-than-steady tiller hand of Finance Minister Joe Ceci. We’re running up debt at such a ferocious pace, we can’t keep track of all those zeros on the bottom of the ledger.

This current financial year, we’re borrowing about $10.3 billion, while come April Fool’s Day, when the charade begins afresh, we’ll probably be after another $9.7 billion. Ceci thinks this is a good time to borrow and “invest” in the province because rates are so low.

Oh really? Well, we’re destroying our provincial credit rating at such an alarming rate that what we’ll pay in interest when we roll over current bonds or borrow some more will inevitably rise. And that’s before the general uptick in borrowing costs the bond market is signalling kicks in.

We’ve kicked this can as far down the road as our feet could manage and now we have to retrieve it. This reckoning will not be pleasant.