Never mind debt, keep spending

Brian
Brian Jones
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Don’t be fooled into thinking Dwight Ball, Cathy Bennett or anyone else in public office cares a whit about your debt.

Brian Jones

Oh sure, they whine and wail about the government’s woeful deficit and beg for public input (public input: a method by which a prisoner is allowed to choose his or her own punishment).

As for your personal financial travails, they don’t give a fig, or, to use the Newfoundland (and Labrador) vernacular, they don’t give a turnip.

As of this week, Canadian consumers/citizens owe a total of $1.9 trillion (with a T). That’s $53,000 of personal debt for every breathing citizen in the country, whether they have a job or not, whether they are still in diapers or not, etc.

(Compare that to the mere $17,000 the provincial government owes for every breathing Newfoundlander, and Ball and Bennett might be advised to tone down their hysterics.)

This happy figure comes to us courtesy of the Office of the Parliamentary Budget Officer (PBO), whose job is to advise the public on how well — or not — the federal government is spending taxpayers’ money, and also to occasionally remind people that they are living an existence of servitude and indebtedness.

Just to be clear, the PBO includes in “household debt” mortgages, consumer credit, non-mortgage loans (car loans; student loans) and other bills (i.e., stuff you bought, but didn’t pay cash for).

How serious is the household debt crisis? Well, according to a helpful report released this week by the PBO, consumer/citizen household debt has more than quadrupled in the past 25 years. In 1990, total household debt in Canada was a bit less than $0.4 trillion (i.e., $400 billion). By late 2015, it was $1.9 trillion (i.e., $1,900 billion).

There is indeed a debt crisis in Canada, but it’s not necessarily the one Ball and Bennett and all the other politicians are bemoaning.

Not to worry. Debtors’ prisons were done away with when bankers realized a guy who was imprisoned couldn’t earn the money required to pay back the loan they gave him.

According to the PBO report, “Households headed by someone aged between 31 and 35 hold the highest levels of debt. The level of debt then steadily decreases as the age of the household head rises.”

In other words, people spend a significant portion of their working lives paying off accumulated personal debt.

Lest anyone be confused, this is unrelated to the concept of the “free world.” But in terms of the developed world, the PBO clarifies that “households in Canada have become more indebted than any other G7 country over recent history.”

News reports that have quoted various politicians praising Canada’s stellar economic performance were highly misleading. Productivity and growth are meaningless statistics unless you also factor in personal debt, income and employment.

The title of this week’s PBO report is “Household Indebtedness and Financial Vulnerability.”

And what a tale of debt and vulnerability it is. In 2015, household debt “reached 171 per cent of disposable income. In other words, for every $100 of disposable income, households had debt obligations of $171. This is the highest level recorded since 1990.”

Naturally, one is led to wonder about the cause of such encouraging news.

“Analysis conducted at the Bank of Canada suggests that low interest rates, higher house prices and financial innovation have contributed to the increase in household indebtedness.”

The PBO report doesn’t define “financial innovation,” but it’s probably a euphemism for layoffs, salary freezes, pay raises that don’t keep pace with inflation, etc.

Also this week, the Bank of Canada held its interest rate at 0.5 per cent. Despite debt, it is important to the economy that consumers continue spending. So, never mind that $1.9 trillion. To the mall …

Brian Jones is an indebted copyeditor at The Telegram. He can be reached for free at bjones@thetelegram.com.

Organizations: Bank of Canada, G7, The Telegram

Geographic location: Canada, Newfoundland

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Recent comments

  • FINTIP
    January 22, 2016 - 14:12

    Don't you think your outrage is a bit misplaced here Brian? Not sure how or why Ball should be held accountable for my personal choice to take on a mortgage or buy a new car on the never-never plan. To some extent the Feds do that through monetary policy. As for the province's debt, it is in the danger zone but I haven't witnessed any hysterics on Ball's part yet. The huge drop in oil prices and the borrowing spree by the previous government are mostly to blame. And I needn't tell you just how much worse that was made by Muskrat. Davis kept the lid on this dirty little secret until the election was over. The deficit is twice what he said it was and now Ball is weighing whether he should backtrack on some of his promises. But I gather you think he's getting his knickers in a knot over nothing. Incidentally the estimated per capita debt this year in NL is about $25,500 which is the highest of any province in Canada and well above the Canadian average of $17,000. By contrast Alberta, which is facing some tough times of its own, has a negative per capita debt. I don't want to alarm you but, as someone with extensive training in finance and economics, I think I'm right in saying that unless oil prices recover at least half their highs in recent years this province could be in a real jam.

  • NL'r
    January 22, 2016 - 12:36

    Redgrave, are you from here? Don't they have any media outlets to post comments where you come from, which, I'm sure, they're all absolutely wonderful just like you?

  • NL'r
    January 22, 2016 - 11:26

    Where are you from, roy206?

    • roy206
      January 22, 2016 - 12:28

      I believe it is time for the Telegram to institute a new 2016 policy, that all contributors sign their names to all comments, no exceptions.. And the community of the writer as well.

  • Ken Kavanagh
    January 22, 2016 - 10:53

    Good piece Brian but the but, for me, the real gem is contained in your last paragraph. Never mind that Ball or Bennett don't really care about your/our debt. The entire economic system and the people who control the levers of this system don't care. There is something inherently wrong with a system that on the one had wars us of the impending doom as a result of our personal debt and yet, at the same time, will entice us to borrow even more to save the system/economy!!!!! Between the people and the economic system, which one serves which??? Ken Kavanagh Bell Island

  • Stephen  Redgrave
    Stephen Redgrave
    January 22, 2016 - 10:51

    Brian, thank you. You are one of the few who truly know how our monetary system was set up hundreds of years ago....keeping the minions in debt. Without debt , there could be no stock market where men and women buy futures on work that hasn't been done yet. In other words--debt. Based on expectation that the worker Bees will do what they have to over the next year, or twenty. It doesn't matter. The banks, both love me, and hate me at the same time. I have thousand upon thousands in credit, but I keep it paid in full. No debt means less profits to the lenders. Perhaps if this basic principal was taught in schools as mandatory, it would be the best lesson a teacher could pass on. Instead, we are taught to borrow--zero down, and no payments for six months. Sound familiar?

  • roy206
    January 22, 2016 - 09:49

    Nice piece and the subject will be front and center from here on. It should be noted that the provinces debt rests on the shoulders of those who work, and when you do that math every worker in the province would need to pay an EXTRA $200. per week in taxes to look after this situation...Good luck Minister Bennett

  • Bottoms up
    January 22, 2016 - 08:49

    How's the business going, Calv?

  • Ev
    January 22, 2016 - 08:06

    Younger people never grew up in times when money was hard to come by. They don't mind going in debt, they don't look ahead to what might happen if they lose their job, get sick or interest rates start to climb. Caution is a foreign word to them.

  • The real Calvin
    January 22, 2016 - 07:43

    Thoroughly enjoyed this one Brian. Canada is a carbon copy of the economic/financial situation that ended in ruin down in the US. When the ball drops here, I wonder if people from Florida will be buying up empty houses in NL as summer homes? Me thinks not. On the bright side, when it does happen, hard working individuals who can't afford to buy a home now will be getting them at a quarter of the current market price to help the banks recoup defaulted mortgages.