Canada's "Other" Problem: Record High Household Debt

Tyler Durden's picture

Earlier today, the Bank of Canada surprised some market participants by failing to cut rates.

True, the loonie was plunging and another rate cut might very well have accelerated the decline, further eroding the purchasing power of Canadians who are already struggling to keep up with the inexorable rise in food prices, but there are other, more pressing concerns.

Like the fact that some analysts say the CAD should shoulder even more of the burden as Canada struggles to adjust to a world of sub-$30 crude. In short, if Stephen Poloz could manage to drive the loonie lower, the CAD-denominated price of WCS might stand a chance of remaining above the marginal cost of production. Barring that, the shut-ins will start and that means even more job losses in Canada’s oil patch, which shed some 100,000 total positions in 2015.

Alas, Poloz elected to stay put, characterizing the current state of monetary policy as “appropriate.”

We’re reasonably sure that assessment won’t hold once the layoffs pick up and as we noted earlier, the longer Poloz waits, the larger the next cut will ultimately have to be, which means that if the BOC waits too long, Poloz may have to rethink his contention that the effective lower bound is -0.50%.

While there are a laundry list of concerns when it comes to assessing the state of the Canadian economy and the impact of either higher rates (the loonie is supported but growth is further choked off) or lower rates (the economy gets a boost but consumer spending is stifled as Canadians watch their purchasing power evaporate), perhaps the most important thing to remember is that Canada is now the most leveraged country in the G7.

According to a new report from the Parliamentary Budget Officer (PBO) the household debt-to-income ratio is now a whopping 171% which means, for anyone who is confused, “that for every $100 in disposable income, households had debt obligations of $171.”

That’s the highest level in a quarter century and it means that when it comes to household leverage, no other advanced economy does it like Canada:

That would be bad enough in a favorable economic environment with a benign outlook for rates, but it's a veritable nightmare when the economy is sliding headlong into recession and central planners are hell bent on trying to normalize policy some time in the next five or so years.

Put simply, the more debt you have, the higher the cost of servicing your obligations and just about the last thing a grossly overleveraged economy needs is a wave of job losses and a severe economic downturn. Brazil is facing a similar dynamic. 

"Since 1991, household debt has increased each quarter, on average, by almost 7 per cent on a year-over-year basis, with the sharpest acceleration occurring over 2002 to 2008," the PBO says in the report. "In the third quarter of 2015, household debt amounted to $1.9 trillion."

"On its own, however, the debt-to-income ratio provides a limited measure of the financial vulnerability of households," the report continues, adding that "what matters more for financial vulnerability is not so much the level of the debt relative to income, but rather the capacity of households to meet their debt service obligations."

Correct, and on that measure, things have only been worse on one other occasion: during the crisis.


As Canada's depression worsens, expect overburdened households to simply fold up under the pressure. That's when the dominos start to fall in earnest as a cascade of foreclosures bursts the nation's housing bubble once and for all and as the world discovers how exposed Canada's banks are to the country's levered up families. "Concerns about financial vulnerability are particularly prominent in the current context given the recent economic weakness and the expectation that interest rates will rise in the coming years from their historically-low levels," the report concludes.

Of course if rates don't rise, that's probably even worse news for Canadian households because it will mean that the country is still mired in recession. 

We close with two passages, the first from Finance Canada's Update of Economic and Fiscal Projections and the second from the Bank of Canada's Financial System Review.

Canadian household debt levels also remain elevated relative to historical norms. While this is not a risk in and of itself, it does limit the contribution that consumption and residential investment can make to growth. Moreover, if there were a negative external shock to the economy, this could trigger deleveraging among those households holding higher levels of debt, leading to a commensurate impact on consumption and residential investment.


Household vulnerabilities could be exacerbated by a severe recession that is accompanied by a widespread and prolonged rise in unemployment. This could reduce the ability of households to service their debt and cause serious and broad-based declines in house prices.

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Cognitive Dissonance's picture

"To the moon Alice." - Ralph Kramden of The Honeymooners

<Not sure if he was talking about debt, housing prices or the soon-to-be-bankrupt.>

Boris Alatovkrap's picture

Whatever is talk about, is not talk about Amerikansky space program.

StychoKiller's picture

"Welcome to the working week,

I know it don't thrill you, I hope it don't kill you,

Welcome to the working week!" -- Elvis Costello

My Days Are Getting Fewer's picture

Translation from one who watched every show:  An expression meaning optimism without restraint.

tarabel's picture



Actually, it meant he was going to hit his wife so hard that her landing place would be in outer space.

Ralph shows her his clenched fist.

To the moon, Alice.

FreedomGuy's picture

They are going to spend themselves into prosperity. It is Keynes on a family level.

gmak's picture

Take Canada out of the title and substitue any other country in the world (exxcept maybe Iceland), and the article is just as relevant.

Mr.Sono's picture

Russia, South America, Africa, Easter Europe?

thestarl's picture

Private debt in Australia would be up there with the best of them,not to mention the mother of all real estate bubbles

FreedomGuy's picture

I would like to see nation by nation charts on the total burdens on income. The debt to income ratios are interesting but what if we throw their total tax burden on top of it. If gross categories like housing and food could be charted it would be intereting, too.

What I suspect you would find is that socialist-lite countries have far lower disposable incomes even though they get lots of free and subsidized stuff.

Never One Roach's picture

Canada is in deep water, not like the "awesomeness" of the usa according to Soweto:


US President Barack Obama on Tuesday brought down a rhetorical hammer on the Republican presidential field for what he painted as apocalyptic rhetoric about the US economy.

"They don't know what they're talking about. They're peddling fiction during a political season," Obama said during a speech in Detroit.

"It's strange to watch people try to outdo each other in saying how bad things are," he added. "When one says our economy is terrible, another says it's terrible and on fire and covered in bees. They're racing to see who can talk down America the most."

Gonzogal's picture

And the idiot Americans who listened to him believed him! You know, all that "exceptionalism" that Americans breath daily.

But reality hits the fan....


Ness.'s picture

'I moved here from Canada and they think I'm slow, eh?' ~ Simpsons

Backin2006's picture

Time for a short sharp shock. Raise interest rates by 2% and prevent future pain. 

Never One Roach's picture
Calgary housing sale price slide to continue: Re/Max


Looks like Remax is reading the facts too closely.

bustdrs's picture

"No other country does it like Canada", I beg to differ.....


and that was from March last year.

Never One Roach's picture

"Using nominal gross domestic product, the bank estimates household debt at 130 per cent of GDP, which is the highest level on record."


Ouch! Poor kangaroos!


Sydney house prices fall in November: report

buzzsaw99's picture the world discovers how exposed Canada's banks are to the country's levered up families.

I have a hunch the banks will be just fine no matter what happens.

JuliaS's picture

Banks got the oil companies to invest into infrastructure for decades ahead as if the oil was running out. Now all the companies are going bust, which is another way of saying "being transferred to the banks' balance sheets". Banks will end up owning all of the energy producers so that when the rebound eventually takes place they'll be the credit pusher and the oil seller.

Same as it's always been. Heads - they win, tails - you loose.

First they run easy credit, filling borrowers with false confidence in order to keep producing and pledging assets in exchange for phantom confetti. Then they pull the rug and collect, collect, collect. Lather, rinse, repeat.

The groundwork is laid for oil going all the way up to $150. Test wells positioned. Concrete poured. Business plans presented. Banks take over and sell it to the highest bidder on the way up knowing exactly what each property is worth.

Never One Roach's picture

Most bankers will do just fine since most nations are like the usa where they passed the "No Banker Left Behind Act" under the Bush/Hank Paulson/Geitner regime and was continued under Soweto Obama.

cleverusername's picture

fuck all that,  Justin has really nice hair.

Huckleberry Finn from Texas's picture
Huckleberry Finn from Texas (not verified) Jan 20, 2016 8:18 PM

I dont think that is entirely accurate.

Read this.

arbwhore's picture

shhh! Tyler has a hard-on for Canadian doom porn this month. He'll get back to Japan and China later.

P.S. No facts please.

U4 eee aaa's picture

If Canada is doing so well as that writeup indicates then why are interest rates at historic lows? Interest rates historically averaged about 5% not .5%.

I know, I know, it's different this time. We are smarter now and know how to manage an economy.

Toonces McGraw's picture

I think Toronto and Hongcouver skew the numbers a bit, but man that is ridiculous. I just calculated mine and came in at 32 percent. How is 171 even possible. Lots of folks living waaaay above their means. Gotta have that camper, quad and moomba I suppose. I know a few people like this. Shake my head.

arbwhore's picture

Mine is zero... and shall remain there. People have forgotten that leverage can work in reverse too.

honestann's picture

Debt saturation.
Debt saturation.
Debt saturation.

Canadian Made's picture

Canada Imports Everything but Commodities..any questions?

Babalooee's picture

Gee, not enough bad happening in the badlands lately? Poor ol Canada seems suddenly to be center of attention. Remember, has a population probably less than than the Mexico City dump (before it was closed to residents) and GDP less than California. Everybody's just trying their best



Boy, am I ever glad I have no disposable income, debt, or household.


that ratio is irresponsible.

JamaicaJim's picture

Canada just elected Trudeau.

This is not going to end well for our neighbors to the North...

Niall Of The Nine Hostages's picture

Anybody here watch Poloz's news conference?

I saw Carolyn Wilkins didn't show. Who could blame her? Let Steve answer the tough questions for once.

Steve basically wants us to believe the Boy Wonder can solve all Canada's economic problems on his own, so he didn't need to cut rates to keep the Vancouver and Toronto housing bubbles from bursting.

He talked a good game about oil prices but trust me---now they can't use Alberta as an ATM any more nobody in Ottawa gives a shit about Alberta. Albertans didn't vote for their precious Justin. 

Bay Street, meanwhile, plan to snap up Alberta oil assets for pennies on the dollar and make a killing when oil prices recover.

Their real worry is Vancouver and Toronto. The Big Five went all in on residential mortgages. If Ontario goes south and Toronto house prices plunge, that's when we'll see how sound our banks really are. Alberta oil will have value come what may. GTA McMansions won't. 

Most of that household debt is residential mortgages. And most of it is Ontario and BC, not Alberta. There was never a housing bubble in Alberta. Housing is much more affordable in Calgary and Edmonton than in Toronto. The people buying absurdly expensive houses in Alberta were fuckwits from central and eastern Canada too young or stupid to realize oil booms don't last and that the money wouldn't always be there.

zerotohero's picture

That fucktard Harper can take the blame for a lot of this - plus most Canucks are pretty gullible and drink the koolaid of the mainstream media - I almost went bankrupt 17yrs ago with a lot of help from our great 5 fucking banks NOT - I swore once we dug ourselves out of that mess that we would do some things different - once I could afford to I started buying PM's - told our "financial"'guy to piss off - took actual cash out the banks ( they didn't like that hhhmmmm) - read ZH - spread the word - now my family is in a good place up here in Canuckistan and the FUCKING BANKS and these so called FUCKING financial EXPERTS can FUCK RIGHT THE FUCK OFF - eh

Stormtrooper's picture

I've set aside an ounce of gold (a Maple Leaf) to pickup a few thousand acres of prime hunting/fising/bugout land in Canada when the going gets really desperate there.  Should be some real deals coming up in the US Dakotas pretty soon too as the oil drillers pack up and leave.

Charming Anarchist's picture

Only 1 ounce?
How far north are you expecting to go?

Toonces McGraw's picture

Inuvik apparently. Where he will get to see lemmings (the real ones), caribou and nothing else. If lucky maybe a polar bear saunters into those " thousands of acres" lol.

chinoslims's picture

Canadians did the same thing as Americans (overleverage and bought too much shit).  Please don't be like americans.  don't overeat.  don't want to invade shithole countries with oil and don't vote for socialists (whoops, Canadians fucked up on that one).

Bay of Pigs's picture

Many Canadians are fatter than shit and they also went to Afghanistan where they lost plenty of soldiers. Nobody protested either.

Dominus Ludificatio's picture

This must be a another problem Canada has according to zero heads .

tarabel's picture



You guys can't have it both ways. Use the MSM when it agrees with you and disavow it as a source when it says something you don't like.

SmittyinLA's picture

That's nothing 25000 Syrian refugees can't fix.

Yen Cross's picture

  I'm not saying it could happen... I mean, all that cash pumped into Canada over the last 5-6 years, created some jobs?

   Canadian bail-ins? The usd/cad is testing early if not pre-2000 levels. What does Canada manufacture again?

U4 eee aaa's picture

Cars and autoparts mainly.

but Canada also produces boatloads of oil, lumber, electricity and grain

FIAT CON's picture

let's add seafood as well as farmed Salmon(yuk), Tourisim, West Coast Weed.