Canadians Sinking In Debt Quicksand

Debt-ridden Canadians imperiled by Euro mess
OTTAWA—Heavily indebted Canadian households could find themselves in trouble if the European financial crisis spreads globally and damages employment, the availability of loans and economic growth in Canada, the Bank of Canada says.
“Conditions in the international financial system have deteriorated significantly” since publication of its last Financial System Review in June, the central bank said Thursday.
As European leaders met once again to try to ease the growing market chaos on the continent, the bank concluded that “a further significant deterioration in global financial conditions could be expected to have a considerable impact domestically through financial, confidence and trade channels.”
Because of global economic woes, “risks to the stability of Canada’s financial system are high and have increased markedly over the past six months,” the report said. While Canadian banks do not have a large exposure to risky European debt, a collapse of financial systems in Europe would be felt around the world in the form of slowing economies and rising jobless numbers.
In turn, “a sharp and persistent increase in the unemployment rate would reduce aggregate income growth and make it more difficult for some households to make their debt payments,” the bank said. “It would also have adverse knock-on effects on consumer confidence, the housing market and Canadian household net worth.”
While the growth of household credit has slowed since early 2011, it has continued to increase more rapidly than income, the bank said.
As a result, the debt-to-income ratio of the Canadian household sector increased to a historical high of 149 per cent in the April-through-June period “and has been higher than the ratio in the United States since the start of 2011.” “If recent trends persist, the ratio of household debt to income will continue to rise,” the review concluded.
But, to avoid a calamity if global conditions deteriorate further, the government should “continuously assess the risks arising from the financial situation of the household sector,” Carney said. The bank also warned that turmoil on financial markets and persistently low interest rates are imperiling the viability of pension plans.
Canadian net worth drops $4,600 per household

But the Statistics Canada numbers released Tuesday put the debt level even higher, at 150.8 per cent of income.

The rise reflected higher borrowing as well as flat personal disposable income, Statistics Canada said. The 2.1 per cent drop in household net worth, to $180,100 in the third quarter from $184,700 in the second quarter, followed the 12-per-cent slide in the benchmark Toronto Stock Exchange indicator.

"This marked the sharpest quarterly reduction in stock prices and per capita household net worth since the fourth quarter of 2008," Statistics Canada said. It was the second quarter in a row in which household net worth fell.

My view:

A deflationary outcome looks inevitable for Canadians at this point.

Sadly, most Canadians I speak with seem to think they are somehow exempt from the discipline of the bond market, debt deflation, and the reality of a ponzi fiat currency system.

In fact, I sometimes wonder why I even bother to write these posts given the indifference and outright opposition encountered.

Nevertheless, reality will set in for both Canadians and Australians over the next months and years.  

It is my hope that a few will at least be motivated to do something to cushion themselves from the worst fallout of the last 50 years of economic excess.


  1. I hear ya PW - I think many, many Canadians are up for a very big surprise in the coming new year and beyond.

    Mike in Montreal

  2. Thanks for your comment Mike.

    I have been preparing for deflation myself for some time. Sold my house this past year to protect my equity. My aim is to stay near the bottom of Exter's pyramid as much as possible.


Post a Comment