Debt Crisis in Canada -- Canadians are Swimming in Debt

In Canada , Debt to income ratio is one of the highest in history and compares terribly well with the The United States just prior to the global financial crisis in 2008. Debt is putting the Canadian economy at risk of a banking crisis, according to the Bank of International Settlements. This should be a wake-up call for regulators. Canadians' debt to income ratio rose to almost 178 percent. That means Canadians owe nearly $1.78 for every dollar of disposable income. Canadians owe $1.78 in credit market debt in the second quarter, which includes consumer credit, mortgages, and non-mortgage loans, for every dollar of household disposable income. Total credit market debt amounted to $2.25 trillion in the second quarter, including nearly $1.47 trillion in mortgage debt and $782.9 billion in consumer credit and non-mortgage loans. The Bank of Canada has repeatedly pointed to household debt as a critical area of concern for the Canadian economy. Canada was losing the equivalent of 187,000 Jobs last month. The Financial Stress is now at a tipping point. The middle-class is always getting squeezed by the federal government. Fewer tax credits here, more carbon taxes and HST there. It all compounds over time. The only middle-class families that aren't losing are those that work for the public sector, where salary and benefits creep never ends. Union extorted salary increases, jobs for life, gold-plated benefits, and Defined Benefits pensions. It never ends. I have visited and lived in banana republics, where the only rich people are those who work for the government. Canada is fast becoming one of these countries. A shameful and embarrassing transition for hard-working Canadians who want to provide for their families the hard way. Welcome to The Atlantis Report. Canadian household debt levels are at extreme levels, particularly in core urban markets. Moreover, almost all of the increase since 1999 has been in non-mortgage debt, which is typically a variable rate and used to finance non-productive consumption. Worse still, the household numbers are averages; once you back out the responsible citizens with reasonable debt-to-income levels, the typical Canadian household must look like a Ponzi unit. Imagine how the economy would have "grown" over the past 15 years if GDP wasn't goosed by household debt-fuelled real estate-related spending . Think of that real estate commission, land transfer taxes, home Renovations, etc. and consumer spending. When the rate of increase in household debt slows and then contracts, Canadians are in for a nasty surprise. Outside of Alberta, Canada did not had a grinding recession in almost 30 years. Canada desperately needs one to remind people that borrowed money spent on consumption creates only the illusion of prosperity and must be repaid-with interest. But watch the gods of the Bank of Canada battle prevent even the slightest recession because house price inflation and non-productive consumption are idols which they have enthroned, imitating the U.S. Federal Reserve under Greenspan-Bernanke-Yellen-Powell. Canadians are positively swimming in debt. More than $2 trillion, in fact, according to the latest numbers from the Bank of Canada. That's up by almost four percent in the past year, despite repeated dire warnings from economists, policy-makers, and central bankers. Prominent Canadian economist David Rosenberg is warning that record household debt levels in the country will hinder economic growth, and could be a problem for bank earnings. Household debt has been identified as a critical vulnerability for the financial system by the Bank of Canada. When you consider that much of Canadians' net worth is paper wealth from highly over-inflated housing prices in the major cities, the financial picture is much worse. Paper wealth in housing (driven by historically very low-interest rates) is not the same as savings and investments. It should be no surprise that many Canadians are financially messed up or poor after a decade in which the Bank of Canada, following the lead of the U.S. Federal Reserve, cultivated a culture in which wealth has been connected more and more tightly with speculation in equities and over-priced houses. Many Canadians who are financially messed up or poor mistakenly feel wealthy because of notional value for the house, which is mortgaged to a bank. I suspect many house owners perhaps own the final layer of paint on the drywall inside! The rest is owned by the bank, and they appreciate our dedication to debt. It’s owned by the bank via a mortgage for most of it, and via a homeline credit line for the rest of it. It can be much more difficult to reduce debt when macroeconomic factors take an unfavorable turn. This confirms how vulnerable households still are. This isn't a problem that's gone away. That vulnerability also poses a problem for the Bank of Canada is trying to raise interest rates, which serve to squeeze household finances even further. Aggregate household debt increased to $2.21-trillion in the fourth quarter, the bulk of which was $1.44-trillion in mortgages, in addition to $769-billion in consumer credit and non-mortgage loans. Much of that debt was accumulated in the years after the global financial crisis, as Canadians took advantage of cheap credit and the housing boom inflated mortgage loads. A slowdown in housing and flatter price trends means real estate values won’t provide the wealth boost they have in recent years; a golden decade for household wealth creation is coming to an end. As a result, the money to service a heavy debt load is going to have to come from somewhere else. “Because of that, we’re going to see consumer spending growth lag behind income growth for the next years . The last data says that non-mortgage debt is 783 Billion, which is approx $22,000 per capita. The number of Canadians who are $200 or less away from financial insolvency every month has climbed to 48 percent, up from 46 percent in the previous quarter, while 54 percent are worried about their ability to repay debts, according to a new poll conducted for insolvency firm MNP. Maybe buying that house for $500k when it's it's really only worth $195k has something to do with it. The government needs to stay out of this. At some painful point, people will stop borrowing, and housing prices will go down from their artificially asset inflated highs as a result of easy money. But the Liberals just won't be able to help themselves, and the upcoming budget will 'facilitate' more people to get into the housing racket, and of course, these policies will have costs, and they will also drive up the deficit. All this only postpone the inevitable and make it even more painful. It is high time for the government to start treating the housing as living spaces for Canadians and not as speculative instruments for business. In Toronto, the biggest problem is the unaffordability of housing. The Bank for International Settlements which is something of a bank for central banks; It collects and analyzes data to monitor vulnerabilities in the global financial system ; have called early warning indicators like the amount of debt in an economy compared to economic growth as well as borrower's ability to pay back loans . And based on those two indicators ; the canadian banking system is among the most at risk only China and Hong Kong are more vulnerable . Even slow-growing economies like Italy fared better in spite of a banking system that's simply mired in bad debt . The financial institutions use every trick in the book to get people into debt and then drop you by the curb when you're in dire straights and cannot keep up with your payments. Contrary to the myths put out there by the financial sector, Canadian banks do not lose a penny when you default ; since all their mortgages and loans are guaranteed by either the federal government aka the taxpayers ; Or the insurance you take out when you get a mortgage or loan. In most cases in the past 15 years , the financial institutions have gobbled up the insurance companies they deal with, so the money simply goes from one pocket to another, and the public loses every time. Many Canadians work hard and have two jobs but barely save any money . Until people begin to plan their families and prioritize spending on their significant purchases based on their ability to pay off loans before incurring massive interest rates, the debt mongers (payday loan companies) at quick and "easy" money shops all over North America will continue to thrive. Child/daycare costs should be covered by the breadwinners in each family, not by childless taxpayers. Canada's debt serving is 26 Billion each year, and that is just the Federal debt. Every one of the provinces is in debt as well. Do not forget that Canada faced a currency crisis in the 1980s that occurred because bondholders of its debt refused to lend any more money. The economy is a Ponzi scheme. Central banks in every country are printing free money to keep governments going while buying up assets from the wealthy. Nobody but the rich here benefits. As time goes on were continually devalued. There's absolutely no incentive with this system. Wages are not keeping up with inflation. Any gain in wages will soon be wiped out by new and/or higher taxes. Workers are treading water. This cannot last forever. And when that happens, some people end up below the poverty line, and then the credit card bill is the first thing that doesn't get paid that month because food is more important. Trillions were stolen and stashed offshore. Bargain basement prices for our commodities. Money laundering on an epic scale through real estate and casinos. But the real problem is that you borrowed 20K to buy a car so you could work. Until there is further government action on speculation of Canadian residential real estate and tightening immigration policies, household debt will not go down much if at all. As house prices rise, increased debt follows. Either thing will eventually blow up, or the government will throw so much easing at the market that it'll drown out the structural issues, and It will just grind out no growth for a decade. Either way, Canada will look back and learn a few things. The first, that monetary policy loses its effectiveness the closer we get to 0, and might even become a drag as money chases yield, projects that aren't productive are approved due to lower threshold rates, and ultimately, you stimulate asset prices and not growth. The second thing it'll learn is that every time you lower rates, you increase society's sensitivity to rates, and you make it harder to raise rates back up. Third, that Canada probably leaned too much on monetary policy, and it should have used that fiscal policy lever instead.















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