Debt plays a curious role in human society. So much so that even Margaret Atwood wrote a book, Payback, about its origins. For me, it's always been a worrisome thing. It's a two-edged sword: Debt is an obligation that, combined with an unlucky turn of events, can transform modest sacrifice into a calamitous burden; yet, it's also true that those most willing to take on debt – the most highly “leveraged”– are often the most highly rewarded.

In any case, personal debt is a profoundly important part of our economy and becoming ever more so. The ratio of Canadian household debt to disposable income in the second quarter of 2014 was 163.6 per cent, very near its record high of 164.1 per cent in 2013. Today's debt levels would have been inconceivable 30 years ago. In 1980, the ratio was 66 per cent.

Young people now go into large amounts of debt just to get a post-secondary education. Many have personal credit cards. Once they have graduated and find employment — with hope, full-time and reasonably secure — they can acquire an automobile, get married and buy a condo or even a house with all of its required appliances. Then comes the really debt filled years of raising a family.

The financial lenders accommodate all this spending, of course. And thanks to various government insurance programs, the lenders' risk is much reduced. Still, bankers must realize that it's all very contingent on things working out. And so far, so good. Interest rates remain at historically low levels and the extraordinarily high household debt loads are easily serviceable.

Yet, the buildup of debt is like that of methane gas in a mine: It's a catastrophe waiting for just the right spark to set it off. When it blew up in 2008, for example, it led to the Great Recession in many western countries; one from which Ontario has not, even yet, fully recovered.

The proximate cause of the 2008 explosion was, in my view, spiking energy prices, both oil and natural gas (and, in Ontario, for unrelated reasons, electricity). Sub-prime borrowers in the U.S. couldn't afford to carry the mortgage and pay their rising energy bills. So they walked away from their homes; housing prices collapsed; lending institutions imploded and, thence, ensued a cascading catastrophe that spread throughout western economies.

Canadians were lucky compared with Americans because, at the time, we were not so highly leveraged by debt. And our banks were more cautious. Bankers such as Ed Clark, the soon-to-be-former CEO of TD Bank, apparently made the right call in avoiding exposure to the most dangerous loans.

Mr. Clark's prudence paid off big time, for both him and his bank. And he has repeatedly expressed his concern about the current high levels of Canadian household debt. Yet, our economy depends on debt. Household spending power and residential construction is supported by it.

Forecasts of Ontario's future economic growth depend on the assumption that high personal debt levels remain an important part of the modern landscape. Accordingly, so does the government's plan to reduce its own deficit spending and, eventually, perhaps start paying down its own accumulated debt. The spending discipline required of the government is a very tall order. But even if Queen's Park demonstrates the required restraint, the Ontario economy must still grow according to plan. The world outside must behave itself.

In that regard, we've already dodged one missile with multiple warheads. Recent events in the Middle East and Ukraine should have sent world oil prices soaring. But the bonanza of U.S. shale oil and natural gas has smothered the negative effect of these geopolitical shocks. Energy prices remain high, but with a slight downward trend. The Canadian dollar, an energy currency, has not spiked up and may trend down further. And that same shale oil and gas is fuelling a more robust economic performance in the U.S., our most important export market.

This is very good news for Ontario's economy: When you are in debt and lucky, you're really lucky.

It would be nice, of course, to have an energy policy in Ontario that attempted to lessen our vulnerability to world events. And it would be possible to engineer greater energy security for the province. But, don't hold your breath. In the meantime, keep your fingers crossed that our luck holds. Because when it doesn't, it will really hurt.

Purchase: Debt breeds fortune – so long as luck holds out

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