An economist writing for Forbes magazine has tapped Canada as one of seven countries due for a debt crisis and an ensuing recession in the next one to three years.
Steve Keen, head of the school of economics, politics and history at Kingston University London, told the magazine, the trigger will be too much credit, with companies and individuals discouraged from borrowing because their debt is too high and banks then hesitate about lending
A critic of conventional economics, Keen argues that economists failed to anticipate the global financial crisis of 2008 because they ignored the phenomenon of banks lending too much money.
That's the situation Canada is approaching now, along with China, Australia, Sweden, Hong Kong, Korea and Norway, he writes.
Government stimulus programs and programs to support first-time home buyers can postpone the pain, he argues, but credit cannot keep growing at such a rapid rate, unless Gross Domestic Product is growing more rapidly.
Using data from the Bank of International Settlements, which now publishes a quarterly series on both government and private debt, he argues that debt service ratios from all sources, government and private, exceed 175% of GDP in Canada.
The other warning signs he sees in all seven countries are private debt that exceeds 1.5 times GDP and rapidly growing debt over a period of about five years. Meanwhile, GDP growth is stalled or, as in China, slower than normal levels.
In Canada, provincial government debt has mounted in recent years, while the federal government just released a budget that expands the deficit and will result in more debt at the federal level.
Keen argued the U.S. did not recover from the 2008 crisis until GDP growth began to outstrip credit growth.
