Amid Surging Consumer Debt Levels, Debt Payments Are Higher Now Than When Interest Rates Hit 13% In The 1990s

Canada’s economy has an “extreme level” of debt says economist David Rosenberg.

When considering the burden of debt in the Canadian economy, most of the focus is on interest rates.

However, the overall level of debt also matters, since that is what people are paying interest on.

For years, debt in Canada has been rising, and not just at the government level.

As the Canadian economy became more and more distorted, and as Canadians struggled to hold on to their standard of living amid rising taxes, a rising cost-of-living, and stagnant productivity, more and more people turned to debt in order to try and keep their heads above water.

Thus, the overall amount of debt in the Canadian economy is immense, meaning even small interest rate hikes have an outsize impact.

This has led to a situation in which people are paying higher debt service costs than in the 1990’s, when interest rates hit 13%.

As reported by BNN, respected Canadian economist David Rosenberg says things aren’t heading in a good direction:

“Think about that for a minute. Consumers are shelling out more in total debt-service payments out of after-tax income today at a 4.25 per cent BOC policy rate than they were three decades ago when the policy rate was 13 per cent,” said Rosenberg.

“You can’t paint any lipstick on what is happening here in terms of the direction of Canadian consumer credit quality,” he added.

A difficult situation, but not a complex one

To say Canada is in a rough situation would be an understatement.

It is indeed difficult, as we can’t keep interest rates low and incentivize more cheap debt, but raising rates makes tough times even tougher for many Canadians.

However, improving this situation would not be a complex matter.

Cutting taxes, eliminating the carbon tax, supporting the energy sector – imagine the benefit of selling billions worth of LNG to Germany and other European allies – undertaking a military build-up (great for job creation, and research & development, in addition to being a necessity in a more dangerous world), and getting non-military federal spending under control would all start to shift things in a better direction.

Alas, the country is currently run by the Liberal-NDP Pact, meaning the course of the nation is being set by Justin Trudeau & Jagmeet Singh, two individuals bereft of common-sense and lacking a basic understanding of economic principles.

So, while we could potentially grow our way out of our debt problems, Trudeau & Singh are doing everything they can to hold the economy back, which will only deepen Canada’s debt challenges.

Spencer Fernando

Photo – YouTube

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