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Household Debt Soars in Canada, “Stability” at Risk
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Debt by Canadian households is a special phenomenon. Statistics Canada reported today that in the fourth quarter, household debt set another breath-taking record.
Earlier this month, even Equifax Canada, which is in the business of facilitating and increasing this indebtedness, had warned about it. The total indebtedness of Canadian households, according to its own measure, had jumped 7.7% from prior year, which had already been at record levels. The biggest culprits were installment and auto loans. Households are powering consumer spending, and thus the overall economy, with ever larger amounts of ultimately unsustainable debt.
A “a cautionary tale,” the report called it.
The rapid decline in oil prices caught many by surprise. And, that’s the point – consumers and business owners need to be more vigilant. When economic change happens, it can happen very quickly and can challenge previously observed stability of key economic and credit indicators.
In other words, as the price of oil collapsed, as housing stumbled, and as layoffs began – the “economic change” that “can happen very quickly” – the “stability” of different aspects of the economy, including household debt, is suddenly at risk. It’s a warning that consumers might buckle under that mountain of debt.
Now Statistics Canada weighed in. In Q4, household borrowing, on a seasonally adjusted basis, jumped by C$22.6 billion from the third quarter. Credit cards and auto loans accounted “for the majority of the overall increase.” Total household debt (consumer credit, mortgage, and non-mortgage loans) rose 1.1% from the prior quarter to C$1.825 trillion, with consumer credit hitting $519 billion and mortgage debt C$1.184 trillion.
And how did that impact households?
For the third consecutive quarter, disposable income increased at a slower rate than household credit market debt. As a result, leverage, as measured by household credit market debt to disposable income, reached a new high of 163.3% in the fourth quarter. In other words, households held roughly $1.63 of credit market debt for every dollar of disposable income in the fourth quarter.
For the moment, there is still one saving grace to this rising mountain of debt: interest rates have been coming down for years. So the debt service ratio, which measures household interest expense as a proportion of disable income, has been declining as a function of interest rates, though it inched up in Q4 to 6.8%
The chart shows how the ratio of debt to disposable income (red line, left scale) has been rising with a few exceptions, while the debt service ratio (blue line, right scale) has followed interest rates up and down:
The ratio of debt to disposable income picked up speed from 2001 on. It blew through the financial crisis even as US households were whittling down their debt by deleveraging and defaulting. Canadian households didn’t even stop to breathe. They kept spending and piled on debt at an astounding rate. Their incomes rose also, but not nearly enough. It wasn’t until 2011 that the red-hot growth rate started to lose some of its fire, bumping into all sorts of resistance from reality.
With interest rates getting pushed lower year after year, interest expense as a percent of disposable income – the debt to service ratio – has been declining. For the moment, these low interest rates keep the whole thing glued together.
And if interest rates ever rise even by a smidgen? The blue line would do what it started doing in 2006. It would roar higher. With consumer indebtedness at these levels, even a small increase in interest rates will make a big difference in the interest expense consumers would have to fork over.
The Bank of Canada – kicked into panic mode by the collapse of oil prices, the faltering housing market, vulnerable banks, and other nagging issues, including the indebtedness of the consumer, which it pointed out as a risk factor last year – suddenly cut its benchmark interest rate in January. In the past, it communicated such moves in advance. In January, it was a surprise move that shocked the markets.
Today, Rhys Mendes, Deputy Chief of the Bank of Canada’s Economic Analysis Department, told the House of Commons finance committee that the central bank would “not necessarily” be pressured into following the Fed’s rate increases this year. “The bank targets inflation in Canada, and decisions regarding monetary policy in Canada would be based on the outlook for inflation,” he said, presenting the central-bank smokescreen for keeping rates at near zero for other reasons.
The Bank of Canada will have trouble ever raising rates, regardless of the distortion and mayhem near-zero rates are causing. Households can no longer afford higher rates. They have too much debt and not enough income. Higher interest payments would eat into spending on other things. Higher mortgage rates would crash the still magnificent home prices. Consumers would buckle under their burden and default. Not to speak of the already struggling oil companies. And then there are the banks that have lent with utter abandon to all of them.
Years of low interest rates encouraged this dreadful level of leverage. Now it’s an albatross around the neck of the Bank of Canada, and for decades to come. And for the economy, it’s a high-risk burden that could quickly, as Equifax suggested, blow up.
Gravity is already very inconveniently inserting itself into Canada’s incredible housing boom. Read… Housing Construction Skids in Canada, but Crashes in the Oil Patch
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I went to the so called "protest" of the Bill C-51 today in my city (35,000), I arrived 1hr-25minute after it was to start (12:00pm - 3:00 pm), wow, there was 1 person there, So I asked him if he was here in protest, he answered "protesting what?"
,gov Run us over in a big slow truck, cause most Canadians will not see you comin, and then you can back up over us again & again, Taking total control of us, cause no-one pays attention to what the .gov/ big corporations have planned for us!
When are they going to start selling water to the West Coast?
There has been plans for years of Canada sending water to the US.. with some new company closely tied to the .gov officials getting the only water rights to sell water to the US (and therefore setting the price). This has been going on for many years, back to the Vanderzam (BC) .gov. supoposably Harper is involved in this scandal as well as the queen. there is lots of info on the internet about this. You decide what is true or not, but makes you wonder.
Canada!
1 beer bell center $12.50 hotdog $4.50
over price gas
.75 = 1$ us dollar
we inflate some folk!
I renewed my mortgage this week (2 years to go) and while talking with the bank representitive, we talked briefly about the econcomy.
I gave her the website of ZH and asked her some questions, it is funny she has worked there for 26 years and knows very little about finance, Fiat, currency & general banking.
But she did say that she is being pushed hard to lend more money out.
What is a sane Canadian to do? Many of us rent, save our money, and refuse to take on debt. But it doesnt look like its going to payoff in the end...
...but it is almost inevitable that those with 1 million mortgages (doesn't buy much in Toronto) will be bailed out, those Credit Card defaults will be cleaned up, and student debt will undergo a massive bailout...free money...effectively!
Yes, personal bankrupcy is the front line of deflation, and it's as inevitable as me going bald.
And it's not fair to those who pay down their debts faithfully, but deflation must follow inflation. We're just waiting to see if they have the brains to plan it, or suffer a real crash.
But at least u are not depended on them.
The current prime minister Harper took Canadas Debt/GDP ration from ~40% to over 220%~ (point of no return is ~100%). *
Harper is known to attend CFR meetings, and like the elite global vision. (I've often said that Obama has a 6' 2" bilingual lapdog named Harper.)
The only reason I can see for this is to force Canada to join in a new currency. The Amero effort failed, but a crash now would be global and open the door for a one world currency.
I can see this happening mid September '15, the end of this grand Shemitah. There is no reason to believe in this date other than the accuracy of events on the past few shemitahs.
I can see that global currency lasting only a few years as it will still be a paper cover over fundamental fraud.
Just thinking out loud.
*edit*
220% Must be total debt. Govt debt is actually a smaller part of that, so I can't completely blame Harper. meh, I will anyhow.
There is extreme denial here in the Great White North, i buy organic food and now everything is either 5 or 7 dollars, utilities are up, property taxes are up, the price of homes has sky rocketed even for a piece shit across the street from me in Thunder Bay, Ontario 180,000 dollars, fucking unbelievable, people were led to believe that houses will continued to appreciate in value no matter what and interest rates will stay low forever, so my friends bought multiple houses, i surmise this will end badly for a few.
At least many Canadians know how to shoot guns out the window. And they do have one kickass mint who makes awesome coins. Just sayin.
The same goes for the UK and many other countries.
Is it too late for Canada to join the EU?
Debt growth is a one trick pony that when it gets big enough it starts eating through your current income.
Just about every western nation has been through this process chosen by the politicians who told us it was all real growth that in fact leads to a financial stagnation of ever decreasing real consumption as debt is serviced.
YOUR POLTICIANS LIED TOYOU FOR DECADES ON THIS. (On behalf of the banksters of course).
come on harper, do something.
get your MIC to produce more non-lethal gear for the nazis in UE
get that economy going, you worthless p*ick.
Well, at least you have 'free healthcare".
Does it include depression, anxiety, and sleeplessness coverage?
would you like free healthcare in return for paying 30% more income tax?
If you consider ten minutes of counseling with your primary doc to be proper treatment,then it's all good. Otherwise,psychotherapy or prescription drugs are not covered unless you're in the hospital -- you know, after surviving the suicide attempt.
"Well, at least you have 'free healthcare". "
Ahhhh, they have free access to a waiting list.
Healthcare? Not so much.
Squid
Can't buy an Apple Watch unless you take out another HELOC.
Yes, 2 seconds before midnight.
Just sell some Canadians into slavery and it'll be all fixed. Its legal ya kno.
http://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-20/latest/rsc-1985-c-...
Long Full Recourse Loans!!!
RIPS
And finally and more to the point of this article "Household Debt Soars In Canada"...
I have filed for bankruptcy 2x, the most recent being in 2008...
Now, normally, I shouldnt be elligible FOR ANY credit card till 2023, well...
I received an offer for a $2500 credit limit on a "prepaid" credit card...
Get this; the prepayment I need to make is $75 !!! AND my income is $800/month !!! WTF !
So you can see how easy it is to be poor but, apparently, these MoFo credit card companies want me to be MOAR POOR.
ps, I used their printed offer to wipe my ass (seeing as how I cant afford toilet paper)!
Credit scores really have no meaning anymore. Remember BearStearns and Leaman were AAA right up until they weren't.
And I'm betting you were offered credit cards by banks who can print money out of thin air(not a credit union or provincial treasury).
Ironicly, the banksers are desperate for us to have more money, even if they have to give it to us. It seem like taking money from the people is the engine of this paradigm, and they can't take it if we don't have it.
Yes this may be true but the winters are getting colder.
It's not just the debt serviceability that is the problem. Under a continued interest rate suppression regime, Canada is importing inflation, thus destroying the purchasing power of disposable income. Debt servicing requirements, regardless of prices, doesn't change. If real disposable income falls as a result of the Bof C importing price inflation, then the highly indebted Canadian is in trouble as they will be unable to service debt while putting food et al items on the table. Either way it spells trouble for the Candian stock market - because if consumption drives the equity bus, the days of "want it now - buy it now" are over. If the US raises rates, $CDW will fall, all else equal and this will accentuate the inflation risk even more.
Accoridngly, perhaps it is Canada, more than anybody that would desire and benefit from a war (of any kind) right now.
Some 300 bombing missions in the Mddle East over the last few months might lead one to believe that we already are at war. Funny that a few hundred million for that doesn't even cause a scratching of the balls by our neo-con majority government. As to who benefits of said war, it certainly won't be the Canadian citizen.
Here is Palm Springs, we shake our heads seeing the Canadian snowbirds living large, driving massive, tricked out SUVs and 80K + sports cars. Have to wonder when the bubble up north finally pops and they dump their second homes here en masse, cratering our already teetering real estate market. With CAD losing over 20% of its value to USD the incentive is building.
Canada is very different from the US in that anything which might worry the public is typically hid from sight or disguised in some way. Open the TV and you never see the car jackings, suicides, road rage, etc you see on US TV even though it certainly can and does happens here too (kinda happy not to see that stuff honestly). So when it comes to stealth actions in financial markets north of the border one should never be surprised about that either.
We never saw anything in the media about bail outs going to banks here but yet it was certainly taking place as well (probably for our own good, right).
http://business.financialpost.com/2012/04/30/did-canadian-banks-receive-...
The problem I really see is that Canada has no Freddie Mac to guarantee 30yr locked rates on mortgages so typically at best people up here lock for 5 years (you pay basis points to get the lock too, longer the term the more points you pay.....RBC's 25 year locked rate is 8.75% !!!!!!!) then go back into the market again when the period is up. With rates continually falling for years now many have been lulled to sleep and just let their mortgage interest rate float so there is no protection at all from rapid rises in market rates. So when (not if, but when) interest rates finally start going up again there will be a scramble to lock in quickly before too much damage is done to disposable income. That is when you will probably see the housing bubble come home to roost. Canadians feel pretty good about avoiding the 2008 market crash but they forget much of it was smoothed over with the bubble in energy prices and massive stimulus from the govt (remember the TV commercials for Canada's Economic Action Plan?!)
So yes, it's a serious concern for 2nd home markets like AZ, CA, NV and FL that candians will just drop the keys inside the door, drive their leased Porsche to the airport and fly home......they did it in 2008 too due to a drop in the housing market but once real estate bottomed and energy boomed (creating the rise in the loonie) they came back as buyers en masse. Next time it won't play out the same way I'm afraid.
Canada does have the equivalent of Freddie Mac it's the CMHC, and they gaurantee the mortgages in Canada, and when the funds run out they are backed up by the .gov yes the tax payer!
I think you completely missed the point here........it's not an issue of mortgage insurance, the problem is that the government does not allow any way to lock interest rates over the life of the mortgage (majority of homeowners have full market exposure to rates right now). Not only that but in Canada the mortgages are full-recourse (meaning banks can come after you personally despite forclosure) versus non-recourse (all banks get is the property to auction off) like exists in the US. Very different markets and to me it's a much more dangerous situation up here which many are likely not aware of.
Canada sounds almost exactly like Australia. But if there really is a storm coming can you think of any better countries to weather it in?
Canada was the best, until Harper took the GDP/Debt from ~40% to ~220% (point of no return is ~ 100%).
Now I doubt any nation can survive the coming collapse, but many regions with diverse resourses can prosper.
@MARKAR...what you describe are the last, few and lucky retirees that actually managed to build personal wealth due to the awesome living standards we once knew long ago in Kanada...
THAT SAID, our gubament, like all other western (and Greek) gubaments, are salivating at getting their hands on that accumulated wealth.
With the shit going down here (quietly and stealthily), won't be long before the "snowbirds" freeze their asses with rest of us poor bastards and are eating dog food (once the government portion) of their retirement portfolio disappears.
Ain't NO ONE escaping the crapper...some of us are just closer to the bottom of the toilet than others.
+1 Yes. There will be pressure to sell the condo in US with a depreciated $CDW and take the FX windfall to pay down domestic consumption debt at home.
Alberta budget coming within two weeks. We have been warned to fasten seatbelts. If oil stays low the ripples spreading out thru the rest of Canada will be interesting.
There's s many "welfare" provinces that dont produce squat...and depend HEAVILY on handouts by the formerly "rich" provinces, Alberta being at the top of the money pile.
So I agree "dogbreath"...if Alberta blows...the poorer provinces and even the "richer" ones, are mucho fucked !!!
Black Loon event.
Racist!!
Sorry! Do you want some maple bacon?
It's getting tough out there, Canadian government agencies are having to moonlight to make extra cash by dealing with ISIS.
http://www.dailymail.co.uk/news/article-2991628/Man-held-Turkish-authori...
Pretty sure this makes us frenemies with ISIS in Syria, but we hate them in Iraq (but CIA and Mossad train them anyways).
http://www.mintpressnews.com/iraq-arrests-isis-advisors-us-and-israelis-...
It's getting tough to track when and where I should hate ISIS. Pretty sure we don't need to bomb Canada, yet....
The FBI didn't take long to infiltrate "Occupy Wall Street", smear them and completely shut them down, yet ISIS and Al Kaeda (both CIA operations) can recruit mercenaries (as Israel does at our Universities since decades) year after year without any interruptions whatsoever, fly them to whatever country, train them, and send them off to murder civilians without a hitch. (Do they fly like the shoe bomber, assisted by special agents and never need to show a passport throughout their travels?) They arrive in Turkey, Jordan, unhindered, and get to where they are requested, like clockwork. The CIA (MI6, RCMP, French SS, Mossad) will never infiltrate their own operations to out themselves. Get it?
Just to follow up on this: I would suggest that the debt at government levels (especially ONTARIO) is a bigger issue. This will have to be paid down and that means either less .gov spending (hah!) or tax increases (duh). this of course will hit the consumer in the wallet even if BoC continues to keep interest rates low. Add to that the price increases in necessary items such as food and utilities, and one quickly sees that the debt level is the least of Canadians' worries.
Agreed "gmac"...here in queerbek, its the "austerity" festival and (fabricated) "terrorism" meme...presstitutes never discuss the ecenomy anymore, meanwhile, food prices have literally skyrocketed, electricity costs have risen 8% for residential in the last 12 months, real hourly wages, down, and on and on and on...apparently, a good chunck of TARP was "gifted" to our major banks in 2009...so we really cant claim to be in better shape than the US. Again, from talking to coworkers and friends and acquaintances, every one is in denial mode and all are waiting for "better days"...good luck with that, I say!
I don't know mucch about Quebec, but I see the same in the maritimes- esp Nova Scotia. It is a shame that they have the economy so screwed up. Handfuls of family names do quite well as most scrape by and don't even realize how badly they are being taken advantage of.
As an "awake" born and raised Kanadian, I see that we live in a bubble...our presstitutes are just as seasoned as in the USSA and theres no real dissenting voices (like ZH, for example). As for Kanuck QE, I would beg to differ...difference is, it's been done by stealth and we' e been getting the same "fantasy island" job stats as in the US.
I would surmize that the only reason things "appear" less dire here is because we are the poster children of a dumbed down people. Our major centers are swamped yearly by high immigration numbers, for whom, our streets still seem paved with gold. But for those that have lived here all our lives, we know we're circling the toilet bowl and are on our way down the crapper...we're just too Kanadian to do anything or say anything about it.
Not quite so that
"theres no real dissenting voices" in Canada.
Start with
http://www.globalresearch.ca/
also check out Naomi Klein
http://www.naomiklein.org/main
Police State Canada?
by JOYCE NELSON
http://www.counterpunch.org/2015/03/13/police-state-canada/
There are "dissenting voices" in Canada!
They just apologize profusely before dissenting.
http://www.comer.org/
Did you guys hear that? This Kanadian dude thinks his country can out-dumb, out-immigrate, out-circle the bowl, of the great USSA. Lets all tune in to Kardashian TV and show this hoser how it's done!!!