In the graph above, Macleans Magazine charts Canadian's debt-to-income ratios, alongside some increasingly alarmed quotes from BOC governor Mark Carney or other Bank officials.
Macleans notes that it has been years since Bank of Canada governor Mark Carney first started warning about Canadians piling on too much personal debt.
Rising household debt, after all, has been the most dangerous byproduct of his low interest rate policy, which was initially designed to help Canada sprint out of the Great Recession.
Later this low interest rate policy was partly dictated by the need to help sputtering Canuck exports.
Right from the get-go, though, Canadians haven’t been listening.
As the situation has become more dire, so have the Bank’s warnings.
Today Canada’s ratio of household debt compared to disposable income is inching toward 160%, the peak seen in the U.S. and the U.K. just before their respective housing busts.
Macleans also notes that Carney is still sounding those warnings. Last week, he finally raised the prospect of raising interest rates, cutting people off from all that cheap money, even as the Fed down south sticks to near-zero rates.
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Without the continuous increases in household debt, the economy would not have "recovered" at all. When you have mortgage debt equal to 80% of GDP (note, it is now 100%) and growing at 6-8% per year, that has basically generated all the economic growth in the country. Back that out and GDP will start falling.
ReplyDeleteThey reversed it in 2008 with an exceptional flood of loans by the CMHC and super low interest rates of 0.25%. It is now an entirely political decision when to stop the housing bubble and start the recession. Carney, Flaherty, and anyone with a calculator can see there is no way out of this one.
Quite comical watching these guys plead with the public to stop "using" while they continue to dole it out.
ReplyDeleteIt will come down to a political decision to prick the bubble, and obviously no one wants to be known as that guy.