As interest rates rise, people will have to put more and more money towards paying down debt, which will have a big impact on the economy.
The Financial Accountability Office of Ontario is warning that rising household debt poses a growing risk to Ontario’s economy.
According to the CP, “The Financial Accountability Office said in a report released Tuesday that an average Ontario household owed nearly $154,000 in 2016, up from $119,000 in 2010. Its analysis shows that paying down that debt cost an average Ontario family about $12,500 in 2016. As interest rates rise, those repayment costs will grow by nearly 25 per cent to $15,500 a year by 2021, it said.”
Higher debt spending will mean less spent on consumption, as noted by economist David West:
“That really is money that will have to come out of discretionary incomes. It’s money that will otherwise be spent on goods and services that now will have to be diverted towards debt payments.”
West points out that government revenues will also take a hit – which is a big problem considering that the provincial debt is the largest of any sub-national government on earth.
Of course, the Liberal government is really to blame here.
They massively increased energy costs, increased taxes, and put in policies that artificially restricted housing supply, all while the population kept increasing.
This all comes together to simultaneously raise the cost of living, and distort the housing market. That makes life increasingly unaffordable, forcing people to take on more and more debt in order to hold onto their standard of living.
Until those policies change, the economic risk will continue increasing, and a serious economic crisis becomes more and more likely.
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