Public Underwriting of Private Debt: The Prospect of Industry Targeting

This paper ascertains the nature and foreseeable effectiveness of some of stimulus measures introduced by Canada's federal government to stem the 2008 financial crisis. To that end, the paper considers three distinct elements which form one logical continuum. Starting with the identification of components of the overall economic stimulus package, the consideration then shifts to the least invulnerable stimulus measure, i.e. support to the auto industry. This is followed with a discussion of the possible implications of stimulus measures and other selected factors on the level of federal debt. The analysis shows that there is reason to doubt that the financial support to the auto industry was commensurate with its relative size or its comparative importance to the Canadian economy. Moreover, the combination of economic uncertainty and the already existing fiscal pressures of an aging population may exacerbate significantly the actual levels of federal deficit and debt. As such, a balanced approach to planned federal deficit reduction and federal debt stabilization may once again be desirable.