Drowning in debt? The good news is that you're in the majority. The bad news is that it's worse than they've been telling everyone. After re-crunching the numbers, the Bank of Canada has announced that the average person in Canada's debt-to-income ratio is not the once dreaded 152%, but a whopping 163.4%. Don't worry though, the government of Canada recently announced it has created a handy toolkit to guide you back to financial success! It's a good thing that this toolkit is only available online, because it wouldn't be worth the paper it would be printed on. Now, as bankers and politicians take turns advising us to spend more wisely, they conveniently omit the fact that it is their failed economic policies which put the livelihoods of most of the 33.5 million people living in Canada in jeopardy. Even worse? They have absolutely no solution for the crisis.
Life in Debt
“I am concerned about household debt. I do think ultimately this is going to end in tears, because inevitably [interest] rates are going to rise. And when they do rise, I think it is going to be a real shock to people.” - Craig Alexander, chief economist at Toronto-Dominion Bank, Canada’s second-largest lender.
Your debt-to-income ratio is the percentage of your total debt (mortgages, loans, credit cards, line of credit) in relation to your annual after tax pay. Right now, you basically owe a dollar and sixty three cents for every dollar you put in your wallet. It's right out of the upside down world of Alice in Wonderland. What sense is it that you work but you basically earn in the negative? Unfortunately, in this case it's not just an absurd dream.
According to credit reporting agency Trans-Union, in the past five years alone debt loads have increased 400% more than the rate of inflation in Canada. Are we really to believe that people in Canada have become that much more irresponsible in their spending in the past 5 years?
What is to be expected? Statistics Canada reports that there are six unemployed people looking for work for every job available in Canada. You don't need statistics to tell you that the grocery store doesn't stop charging when you're unemployed or under employed, and that the landlord wont accept payment in “please and thankyous”. It's for these reasons that there are more than two credit cards for every person living in Canada today.
According to researcher Dr. Paul Kershaw, since the mid 1970's, a young couple in Canada's combined income has increased only half a percent, despite that fact the 32% more women are working and contributing to that combined income. In that same time, housing prices have increased 76%. Basically we work more and can afford less.
At the same time, rising student debt levels became a growing and disturbing phenomenon. The Financial Post reported recently on a study which found that it costs approximately $80,000 to earn a university degree, when you include tuition fees, living expenses, and the interest on student loans. It also found that it takes on average take 14 years to pay back a student loan. The Canadian Federation of Students reports that student loan debt in Canada is almost $15 billion, and this includes only money owed for Canada Student Loans and excludes debt to provincial or private loans.
Before the Fall
People living in debt is not new to Canada, but it really boiled over in 2008 with the World Financial Collapse. In the United States, where the debt-to-income ratio was almost exactly what it is today in Canada, the collapse was catastrophic. To try and avoid a similar chaos and stimulate the economy in Canada, the Bank of Canada slashed interest rates to 0.5% before settling at the still unheard to rate of 1%.
The idea is simple – encourage and allow people to borrow more and more to pay for things they can no longer really afford. It keeps the economy moving in the short term, but in the long term eventually people will be spending their money repaying their debts instead of buying new things and we are back to square one. There is also always the real possibility that people will be unable to ever pay the loans, and the banks will be stuck with billions in bad debt like in the United States.
For now the Bank of Canada is forced to keep interest rates at the artificially low level of 1% or risk a further financial collapse, but for how long will they be able to do this? Even a slight increase in interest rates would have catastrophic consequences for the millions of people in Canada who have taken on huge debts as a means to survive the current economic crisis.
As economist Ben Rabidoux wrote during a Globe and Mail newspaper debate on Canada's debt crisis, “There’s a saying that perhaps illustrates my concerns with current debt levels in Canada and the pace of debt accumulation over the past decade: 'It’s not the fall that kills you. It’s the sudden stop at the end.' “
Just before 11:19pm Eastern Time on Saturday, November 25th, the national debt of the Canadian government surpassed $600 billion. Running a deficit is a common and sometimes necessary governmental practice, but $600 billion from a government which tells us we are the ones who need to be more responsible? At the current rate, Canada's national debt is rising by $74.6 million a day.
It's a myth that the Canadian government didn't bail out big banks and big businesses while the majority of people have suffered more since 2008. According to a report by the Canadian Centre for Policy Alternatives (CCPA), financial support for Canadian banks from various government agencies reached $114 billion at its peak. "At some point during the crisis, three of Canada's banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company," said CCPA senior economist David Macdonald.
A simple reminder: the money the government of Canada used to bail out the banks didn't come out of Stephen Harper's pockets – it came out of the taxes paid by same people who are today struggling with huge debt loads across Canada, or from money the government of Canada is promising people will pay through future taxes.
Another simple reminder: Canada is the 14th largest military spender in the world, and currently military spending is higher than it has been at any time since the end of the Second World War. The government has withheld information about the real costs of the wars and occupations it has waged across the world over the past decade, but conservative estimates put the cost of the war in Afghanistan at $30 billion already.
Us Vs. Them
In the same Globe and Mail debate as Ben Rabidoux, Eric Lascelles, chief economist at RBC Global Asset Management, had these encouraging words for people worried about their rising debt, “Strictly speaking, Canadians have not actually become more indebted on a net basis: after all, one person’s debt is another’s savings.” This is the way the government and the bankers think and they act – completely heartless to the realities of a world where the rich are getting richer and the poor are getting poorer. It's also economically stupid – bankers in the United States said the same thing before their huge crash in 2008 when people simply couldn't pay the huge debts they accumulated.
CCPA senior economist Armine Yalnizyan pointed out that new hires in Canada today make 40% less than the average worker, and “there are still 1.4 million people looking for work -- a number that is about 25 per cent higher than before the crisis started, and not steadily declining.”
Can We Survive?
It's simple. If we can't earn enough to live, a financial toolkit is more of an insult than a solution. The current crisis is bigger than individual consumer decisions. It's based on government decisions to prioritize the rich over poor and working people, and to prioritize war and occupation ahead of jobs and education. They created the crisis, and now they want us to pay for it. A U.S.-style financial meltdown is completely possible.
It was not long ago when students in Quebec mobilized huge strikes which were eventually successful in overturning tuition free increases and new laws which violated civil and democratic rights. Quebec students didn't accept the so-called “bitter financial realities” forced on them by the government, and neither should we. They mobilized and called for unity with all poor and working people, and so should we. This is real way to confront the debt crisis in Canada.
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