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So Canada in aggregate doesn’t have a AAA-rated balance sheet to begin with and now Ottawa has to somehow shoulder a good chunk of these liabilities.

In the end, it doesn’t matter what the rating agencies do, in any event, as we saw with the inconsequential U.S. debt downgrade in the summer of 2011. It has to be remembered that, prior to 2002, the Canadian federal government was frequently rated as an AA-credit by at least one of the major agencies. I’m not sure anyone cared or even noticed… as much as it may be a source of national pride. Remember that in 2002, when the Canadian government was an AA-credit, the all-in debt-to-GDP ratio was more than 100 percentage points lower than it is today. And we also have to keep in mind, especially now that Ottawa is being forced to backstop everyone, that the national balance sheet really is Ottawa’s balance sheet when crises emerge.

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Ireland is a classic case in point. In several stages in the Great Financial Crisis, the federal government felt compelled to bail out the banking sector which, when all the sector liabilities were included, meant that the government debt-to-ratio ballooned from 21 per cent prior to the GFC to 110 per cent within four years’ time (actually, it was really north of 300% when all the guarantees were factored in). Prior to the Great Recession, Ireland, like Canada today, possessed a AAA-rated federal government balance sheet. By 2011, all three major agencies had downgraded the sovereign credit ranking to BBB. So… Canada may end up being lucky if all it ends up seeing is a cut to AA. It likely will be facing a series of downgrades, and frankly speaking, the national balance in aggregate is already barely investment grade because it is shameful to have been incurring such a massive debt load at the peak of the cycle and at or near full employment.