As mentioned, a lot depends on the course of inflation and especially interest rates. At near-zero interest rates, almost any amount of debt is affordable and sustainable. The minute interest rates start rising very quickly, this country could find itself in a difficult position.
This was exactly the conundrum the economy faced in the 1994-95 debt crisis. At that point, interest payments especially became unsustainable. The Bank of Canada made it clear that it was not going to bail out the federal government. As the federal government made difficult fiscal choices, the Bank of Canada then maintained lower interest rates to ease that path to restore fiscal equilibrium. A lot depends on the course of interest rates, and a lot of people seem to be counting on interest rates staying low.
A lot of what I said today was based on Chairman Powell's comments for the Federal Reserve board yesterday. He clearly indicated that the central banks will put up with almost any amount of inflation this year. However, going forward, once people start to expect inflation, all bets are off and interest rates could rise quite quickly.
We've already seen interest rates rise this year. The 10-year bond rate in the U.S. has jumped up from less than 1% at the start of the year to 1.7% already. I sit here and watch every day and there's an increase of almost 0.1% a day. This is the story in financial markets these days: How long and how sustainable will the upward movement in interest rates be? That's going to determine everything.