Leaving aside the question for the moment of unfunded liabilities direct debt in Canada is around 1.2 trillion dollars for all levels of government. Should this money be repaid and if so how should the funds for it be obtained? Who is it owed to? Government debt is often wrongly equated with private debt. While money borrowed by an individual or organization, lent from a high time preference individual to someone with a lower time preference, is productive and constitutes a contract which morally must be fulfilled (indeed, to not repay debt one incurs is tantamount to theft) when the state pays for wasteful spending with a deficit this money can only be repaid by extorting the taxpayer. This represents then not so much a morally and legally binding contract but rather a plan to commit an act of aggression and both the government official and loan profiteer in question are culpable. Since we can hardly sanction the manifest evil that is taxation (and who can deny that it is wrong to obtain revenue by threatening to lock someone in a cage if they do not give up their cash?) we are left with two options for handling this sum. The first is repudiation; the second auctioning off assets held by the government such as crown land or government buildings.
While it is immoral to tax, this is not the only problem with repayment. Raising a trillion dollars through taxation would also be a powerful blow to our future economic prosperity. Such a large amount of wealth taken from the hands of the individuals who created it would leave our nation significantly poorer. It would mean factories not built, jobs not created and it would also mean a much lower standard of living for many people. People or businesses might simply flea in favour of a nation where they can keep more of their income.
Now it's true that repudiation would make it difficult, if not impossible for the Canadian government to borrow in the future but is this a curse or more of a blessing? Take the example of stimulus spending during a recession. We are told that this is necessary for the government to borrow money during a recession to rescue us from the economic downturn but this Keynesian explanation of the business cycle has been dis-proven by history. Far from depressions occurring as a result of a failure of aggregate demand the real culprit is bank credit expansion and artificial tinkering with interest rates. The trough is actually the healthy stage of the business cycle, in which malinvestments in capital goods industries are liquidated and reallocated on the basis of consumer demand. Efforts by the state to rescue the economy will actually make the problem worse in the long run when taxes are collected to repay the funds borrowed to pay for stimulus or malinvestments are again liquidated. Government planners would be better served to study the example of Harding rather than FDR or Hoover. Saye's law, that supply of x constitutes demand for y, illustrates that there is no such thing as a failure of aggregate demand or a general glut of overproduction.
But what about war? Here we have a bit of a mixed bag. In the eventuality that say the Russians invaded it would indeed make sense to borrow significant funds to raise a larger army and fight them off. But this is a truly remote possibility indeed. Canada is not only in possession of significant natural defenses, to whit our oceans, we are also geo-politically connected with regards to our alliance with the Hegemony and the E.U. The boogieman of invading Reds is simply a convenient prop for our elites and the imperialist class. Still it does make sense to prepare for the possibility of a defensive war at some point in the future, by liberalizing gun laws, by allowing for greater acceptance of immigrants and refugees and by adopting the principles of laissez-faire in our economy, the latter two points being critical to national security since we will need a much larger population and industrial base if we are to fend off the rampaging Chinese or Indian hordes of the hypothetical wars of the late 21st or early 22nd century. At any rate the massive nuclear arsenal of our close American allies renders the prospect of foreign invasion of North America an extremely unlikely event. But debt can be financed to use an entirely different set of wars as well, not only those fought defensively here at home but also those which occur in other nations, such as Afghanistan or Iraq. And while it would be good to be able to borrow money to keep our country safe it is terrible to finance wars of aggression in the middle which actually make us less safe by inciting hatred for us both domestically and around the world. Not only do these wars hurt our popularity they also contribute to the murder of countless souls and bankrupt our nation, and while a defensive war is a remote possibility an offensive war or police keeping action is an almost certain reality.
Another problem with repudiation is that a significant chunk of the debt is held by Canadian banks. Could this not send a shock through the banking system? What if the banks shut down and people lost their savings? While it would be possible to settle these debts through the sale of crown lands, it is also important to recognize that money is not exactly wealth. Even if this did cause the banks to collapse and a massive reorganization of the economy to occur the wealth of the nation would still be intact. Farms would still produce foods, factories would still churn out goods and the tar sands would still extract fuel. Indeed there is a strong argument that the banks should collapse since they are fundamentally unsound and the fractional reserve system is both fraudulent and dangerous. Were it not for constant government intervention to protect bankers, that is to say if we had a system of free banking and sound money, they would be forced to engage in full reserve banking and our society and economy would be far better off. It would be far more difficult to fund wars of aggression or any manner of ill advised government spending and we would see rates of economic growth which are scarcely imagined possible in the developed world.
Repudiation is a radical step. It is not discussed by anyone in the political mainstream except to be dismissed but it is the only moral approach to handling government debt and our society would be far better off if it is adopted.