The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

The Wisdom of “Dr. No”

You know things are bad when the Wall Street Journal calls you “an honorary member of the Third World.”

Why would they say that? Just another bond auction to fund the deficit right? Wrong. Financial officials were frantic, not a single bid came through until the final 30 minutes. That could be us any day now, but back in 1994, that was Canada’s biggest problem.

Of the G7 countries, only Italy was worse off. The world dubbed Canada’s dollar the “Northern peso.”

We used to thank God that Italy was there because we were the second worst in the G7.

—Scott Clark, associate deputy finance minister in the 1990s

There was only one way to turn the fiscal ship around. Prime Minister Jean Chretien took an ax to social programs. The only bigger reduction in spending in Canada’s history was the demobilization after World War II.

Of course, the magnitude wasn’t as bad as what we’re dealing with today. Back then, the world still had standards. Canada’s 68 percent of debt to GDP in 1995/96 looks small compared to Italy’s present 120 percent and Greece’s whopping 140 percent.

The political tipping point came when the S&P dealt the Canadians a debt downgrade. Without the nice AAA rating, they were on ever shakier international ground (sound familiar?). Canada’s costs to borrow money would get higher and higher.

Chretien took a big gamble after looking at the books. He was willing to risk holding his seat for only one term, if he could just solve the debt problem. He cared ...