Never mind debt, keep spending

Brian Jones bjones@thetelegram.com
Published on January 22, 2016
Brian Jones

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

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.