America is Headed for a Debt Crisis like Canada's in the '90s

David Dodge and John Manley appear on the front page of the Financial Post in a story on why the United States is staring down a fiscal crisis reminiscent of the one Canada endured in the 1990s—and how the United States could learn a thing or two from the difficult decisions its northern neighbour took to remedy it.

David and John say the United States must act quickly and decisively, even if it’s politically risky or requires shaking up sacrosanct social programs. American lawmakers should act well before borrowing money becomes more difficult and expensive.

“We had the crisis,” John tells the Post. “Once you’ve on a burning platform, it’s best to get off it and we had a burning platform in 1994-95.” A ratings downgrade on Canada’s national debt in 1992, coupled with continued large deficits over the next couple of years, raised the spectre that the IMF might need to intervene in the country’s fiscal affairs.

David says there are few signs the United States is prepared to address any of its debt and deficit issues, including the politically contentious but necessary social security reform. “The first lesson is, you really don’t want to let it go on at the rate it’s going; you’ve got to move really quickly and when you move, you’ve got to move decisively."

David and John also talk about the hard lessons Canada learned in the 1990s, the worldwide impact a U.S. debt crisis could have and why Canada should not forget the lessons of the past.