(Editor’s note: Gordon Thiessen, a Saskatchewan banker, served as Bank of Canada governor from 1994 to 2001. It was a period marked by high taxes and interest rates and fears over rising debts. Thiessen recounted his childhood and tenure at the Bank in an April 15, 2011 interview with Blacklock’s publisher Holly Doan. Following is a transcription of his remarks)
I was born in the late Depression, in 1938. My parents married during the Depression. Our household situation was pretty difficult. It was very tight. We had a pretty frugal existence.
My mother used to make a lot of our clothes. We did the classic things like putting cardboard in our shoes after they wore out. Money was very, very carefully watched. We were certainly less well off than most people we knew.
In small-town Saskatchewan in those days if your parents didn’t own a farm or a business where you might work there were few choices, actually. One was to join the RCMP. Another was to join the military. The third option was to get a job in a bank, so that’s what I did.
My very first job out of high school was with the Royal Bank. I started off as a ledger keeper and finally got promoted as teller. Banking was very different then. You basically took people’s money, looked after it, and if you did lend it was only to customers with a huge amount of collateral.
The incentive to borrow is just huge. People respond to that incentive. But there are risks and that’s what the government and the central bank have to point out.
I don’t have a strong negative view on borrowing but the crucial thing is to do it in a sensible way. You have to make sure you can service that loan in good times and bad. I think borrowing to buy a house while people are relatively young as opposed to having to save and only being able to acquire that asset when they’re older, that’s perfectly sensible.
But now people were borrowing as much as they could to buy the biggest house they could so they would benefit from inflation. There was a sense house prices would go up forever and there was no risk. That is an absolutely dysfunctional situation to be in. It turned out to be completely wrong.
At the central bank we were always worried about governments being rather too willing to spend and not sufficiently willing to raise revenues. That’s what I remember, feeling really very uncomfortable with that.
It became a crisis of public debt. It was a crisis of governments that had run deficits for far too long and were building up a level of public debt that was far too high, one that no longer had a sense of credibility.