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By Philip Cross

It’s possible that Wednesday’s rate-hike announcement by the Bank of Canada might have finally been the beginning of the end of so much “ultra-easy” monetary policy, although nobody knows for sure. What we do know is the effect that so many years of record low interest rates have had on borrowers, and we should be seriously concerned. Canadians have been borrowing record amounts, pushing the ratio of debt to GDP to what some consider a precarious level. Overall, our debt-to-GDP ratio rose to 354.5 in 2016, up 102 percentage points in just a decade.

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Canada was not always so reliant on debt. After a slight increase in the 1990–92 recession, the debt-to-GDP ratio edged down from 240.7 in 1993 to 239.7 in 2005. However, indebtedness began to increase rapidly starting in 2006.

Canada learned nothing from recent hard lessons in the U.S. and Europe

Adair Turner, who oversaw Britain’s banking system during the 2008 crisis, called the debt-to-GDP ratio the best measure of leverage in an economy. He warned that after the ratio reaches a certain point, “the more potentially fragile become both the financial system and the macroeconomy.” The dangers that excessive debt can bring were demonstrated in the U.S. in the 2008 crisis, and Americans still haven’t fully recovered. The crisis spread to the European Union in 2010 when several governments saw their debt shunned by bond markets, forcing them to renegotiate their loans, plead for bail-outs and cancel spending.