Madam Speaker, I regret to inform the House that, while history shows that countries where the debt is more than three times the size of the economy have a strong propensity toward debt crises, according to S&P, Canada's total public and private debt is now 474% of GDP. That includes government debt, household debt, business debt and financial sector debt combined. This makes us the second most indebted country, relative to GDP, of any country in the G7, with only Japan being worse.
I spent a lot of time when I was the shadow minister of finance studying debt crises, and there is a phenomenal book called Big Debt Crises, written by Ray Dalio, the single most successful hedge fund manager in the history of the world. In it, he quantifies the precursors to debt crises. He put together the 48 biggest debt crises that have happened in modern world history, and he put together a chart of the debt-to-GDP ratios of all of those countries. I will list off some of the crises that might come to mind.
There was the Greek debt crisis that happened roughly just over a decade ago in Europe. That crisis then spread to Spain, Portugal and other European countries. There was the U.S. financial crisis, which was ultimately a mortgage debt crisis. There are the examples of the Argentinian debt crises of 1998 and 2001. I could go on.
In putting together all 48 of these biggest debt crises, he recreated the debt-to-GDP ratios that all of these countries had, public and private debt as a share of GDP, and I took the liberty of taking Canada's current debt-to-GDP ratio and putting it in that list. What did I find? Our current debt-to-GDP ratio is bigger than all of those other crisis countries except for two. In other words, there were 46 countries on this earth that had massive financial meltdowns with significantly smaller debt levels relative to the size of their economy than we have here today.
The question is why we have, up until now, not had a full-scale meltdown. The answer is obvious. It is because we have had such inordinately and artificially low interest rates. Even today, as rates rise, much of the debt that is in the current stock of the country is still locked in at lower rates, but that is not a permanent phenomenon. In other words, every passing day, somebody's mortgage comes up for renewal, and the artificially low rate they had up until then renews at a much higher rate. This is the fundamental risk we have. The same goes for government debt. Some of it is locked in at lower earlier rates, but governments have mortgages.
Bonds are just mortgages. They are just varied terms. Some of these mortgages are 90 days. Some of them are 30 years. Most of them are somewhere in between, but all of them at some point come up to renewal, and when they renew they do so at the rates that are present when the renewal occurs. Slowly but surely, that is happening already.
Where do we manifest the higher rates? Ironically, it is in the Bank of Canada itself, because the bank purchased government debts and government bonds when rates were low, and is therefore collecting a small yield on those debts. The bank purchased those debts by depositing money in the central bank's accounts of financial institutions, which sold the bonds back to the bank.
Those deposits are receiving the policy rate of interest that the central bank pays out, which is now 4.75%. In other words, the Bank of Canada has bought government bonds that pay out 0.6% and paid for them with deposits that it now has to pay out 4.75% on, so our central bank is losing money every single day. In fact, the central bank, were it not backed up by the government, would be bankrupt today, because its liabilities are worth so much more than its assets. This is a very unusual situation, but it is a precursor for what everyone else is facing.
I ask this: What happens in the year 2026 when all of the mega mortgages that people took out five years before at artificially low rates with artificially high home prices all come up for renewal, and the rates are three or four times higher than the families had been paying up until that time? All of a sudden, we are going to have hundreds of thousands of people renewing their mortgages at the same time at an increase of interest rates of 3% or 4%. That is not a three or four percentage point increase. That is a 300% increase, because four is actually 300% higher than one. The artificially low rates then create a multiplying effect when they collide with new and real higher rates.
Imagine then that there are hundreds of thousands of people who can no longer afford their monthly payments because they have gone up by $1,600 a month, and the average family only has $200 extra in their bank accounts. They are now paying $15,000 or $16,000 more per year in interest on their mortgages, all at the same time. What will they all think to do? They will sell. What else are they going to do? They cannot afford their homes anymore, and they cannot pay for them, so what will they do? They will sell when everyone else is selling and then, all of a sudden, there is a fire sale.
Furthermore, who is going to be around to buy? Are other people going to be able to pay 5% or 6% mortgages on million-dollar homes? Of course not. Therefore, there will be a preponderance of sellers without buyers to match then. Then what happens? House prices—
