The figures are pretty scary. American debt is out of control and set to continue growing with the current "stimulous" bill. As you can see by the first graph, America's gross debt is running out of control. That includes current obligations and future obligations such as social security.
Public debt implies the current obligations only. But this line is slated to rise significantly given the current stimulous bill.
The second graph shows debt as a fraction of GDP. As you can see, this too is at its highest level since the 1950s.
The average American owes $37,703 when factoring the national debt. That number is slated grow over time.
By contrast, the average Canadian owed $21,505 in 2005 when factoring the national debt. While that number is slated to grow due to the government's current turn to deficits, it will not get anywhere close to the American number.
Americans love to berate Canadians for being socialist due to our healthcare system. In reality, government spending habits this side of the border have been more fiscally conservative for at least 14 years. It was the Liberal government of Jean Chretien that reversed Canada's course from deficit spending to turning consecutive surpluses and using surplus money to pay down debt. Stephen Harper's Conservatives continued that course until recently when they resigned themselves to running a deficit.
By contrast, the US has run perpetual deficits as if they could forever borrow without penalty. The lone exception in the past 8 years was in 2001 when there was a small surplus.
As Canada was becoming more fiscally conservative, America became looser with its money. Sure, the war in Iraq can be blamed for some of that. But as can be seen, even when the deficits were getting smaller, the national debt was still getting piled on. The drops in the budget deficit imply that the US government had some control over its budget even at the peak of a war in Iraq.
I have a theory about why Canada penny pinches and why America spends. Canada's budget is roughly 50% healthcare with costs that can rise. Mindful of this, the government strives to save for future increases in the health budget.
Also, the bulk of political power lies in the urban centres of the country. These places are already developed and do not require much government spending. Rural areas don't elect many MPs and are subsequently neglected. Also, MPs are not free to vote as they choose so earmarks never come into play. The federal budget is set from above and the party votes for it with one voice.
By contrast, the makeup of the American system is such that every representative and senator is independent of their party and their only motivation is to stay in power. The only way to do so is to produce results for your district (i.e. earmarks). Thus, you see a lot of pork in any bill that passes congress. Pork adds unto the government debt. There is no sense of national responsibility. Each congressman or woman is merely concerned with keeping their seat.
When Canada's public debt rises, Canadians know who to blame. When America's debt rises, it's not so clear. Is it the President? Is it the Congress? Is it a combination of both? The lack of a central source of blame means that the debt can continue to rise unchecked.
I also noticed that there is a cultural element to all of this. Right or wrong, Canadians appear to save while Americans appear to spend. Credit card debt seems to be more of a problem in the States than in Canada. I don't know why this is the case but it does appear to be this way.
It is also worth noting that Canadian banks are much more conservative in their lending practices. Good luck finding an interest-only mortgage here. You're lucky if you can find a 5% down mortgage but more likely you will settle for a 10% down mortgage. And you will have to prove significant assets in the process.
The $823 billion "stimulous" bill is like throwing gasoline on a fire. It's more debt and debt is what caused the bad economy in the first place. America could take a lesson from Canada which has been less susceptible to the economic downturn. Simply put, saving during good times will serve you well during bad times. When you pay down debt when things are good, you leave room to borrow when things go bad. But if you borrow during good times and bad, you are asking for trouble.
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