Should Canadians worry about the level of government debt when interest rates are so low? Dr. Martin Eichenbaum, International Fellow at the C.D. Howe Institute and this year's Jack Mintz Lecture speaker, believes the brief answer is: yes. However, he continues, the fiscal behavior of our government is not the crux of the problem. The tail risk to Canada emanates from the fiscal behavior of the elephant to our south.
There is a serious possibility that the US is on a fiscally unsustainable path. Canadian policymakers must take this possibility into account as they plan for the future. At a minimum, the government needs to increase substantially the duration of its debt. Unfortunately, quantitative easing has moved Canada in precisely the opposite direction.