Tuesday, April 17, 2012

Thanks
to a link provided by a reader, the subject of this posting will be the debt
level of Canadians with statistical data provided by Statistics Canada. The
National Balance Sheet - Credit Market
Summary
provides all debt data for individuals, businesses and corporations and
governments and is a veritable gold mine of data that shows changes in the
level of debt that is being accrued by Canadians and Canada. This facet
of the Canadian lifestyle has been in the news a great deal lately, particularly as both
Minister of Finance Jim Flaherty and the Governor of the Bank of Canada Mark
Carney grow increasingly apoplectic about the debt level of Canadians.

For
the purposes of this study, I'll be looking at the consumer credit, loans and
mortgage data for the three decade period of time from 1981 to 2011 with an emphasis on the last two decades. To
put all of these numbers into perspective on a per capita basis, here is a graph showing Canada's
population growth since 1960:

In
1960, Canada's population was 17.9 million. In 2011, this rose to 34.28
million, an increase of 91.5 percent over 50 years.

Here
is a bar graph showing Canada's population for the last 10 full years:

In
2001, Canada had 30.77 million people, rising to 34.28 million in 2011 for an
overall increase of 11.4 percent. As you will note later, the increase in
Canada's population is nearly an order of magnitude smaller than the growth rate
of its personal debt levels, indicating quite clearly that per capita debt is
rising and that it has risen at a more rapid rate in the first decade of the
new millennium than it did in the previous decade.

Now,
let's look at Canadian consumers and their debt levels. First, here is a
graph showing the growth in consumer credit:

Notice
how consumer credit rose more quickly after the beginning of the new
millennium? Between 1991 and 2001, consumer credit rose from $99.17
billion to $187.13 billion, an increase of 88.7 percent over the decade. Between
2001 and 2011, consumer debt rose from $187.13 billion to $452.42 billion, an
increase of 141.8 percent, a rather dramatic increase in the growth rate. Consumer
credit rose even during the Great Recession, increasing from $345.995 billion
at the end of 2007 to $413.055 billion at the end of 2009, an increase of 19.4
percent in two short, very turbulent years. Hey, it's almost as though
the Great Recession never happened in Canada!

Next,
here is a graph showing the growth in mortgages:

Mortgage
growth is the other "big ticket item" when it comes to consumer debt.
Please observe how steeply the curve rises in the last decade and how the
increase in the growth of mortgage debt even in the last year has not subsided despite numerous warnings from the powers that be.
Between 1991 and 2001, mortgage debt rose from $291.11 billion to $465.79
billion, an increase of 60 percent. Between 2001 and 2011, mortgage debt
rose from $465.79 billion to $1.02716 trillion, an increase of 120.5 percent, a
rate of mortgage debt growth that is twice that seen just a decade earlier. I
guess all of those million dollar mortgages in Vancouver and overpriced homes
in Toronto have had an impact on Canadians' debt levels.

Next,
here is a graph showing the growth in consumer loans:

Finally,
here is a graph showing the growth in total personal and unincorporated
business debt (i.e. the sum of all aforementioned debts):

Notice
once again that the slope of the graph increases after 2001 indicating an
increase in the rate of debt accrual by consumers. Between 1991 and 2001,
total personal debt rose from $435.65 billion to $748.006 billion, an increase
of 71.7 percent. Between 2001 and 2011, total personal debt rose from
$748.006 billion to $1.5928 trillion, an increase of 113.2 percent reflecting
more rapid growth in debt levels in the last decade. It's also
interesting to note that mortgage debt is by far the largest portion of total
consumer debt, ringing in at 64 percent of all debt.

Canadians, like the rest of the developed world, are currently experiencing nearly the lowest interest rates in generations as shown here:

We
really are living in a dream world (or a nightmare) where Canada's central
banker is providing what appears to be an endless source of cheap credit to
Canadian credit junkies and then telling us that too much of a credit high is
a bad habit that will lead to no good.

With the growth in per capita debt levels rising faster in
the latest decade than in the decades before, a sudden rise in interest rates
even by a couple of percentage points could make it very, very difficult for
Canadian families to service their debts. A housing market price
correction of as little as 15 to 20 percent could create a wave of foreclosures
as indebted households would find themselves unable to meet their monthly
mortgage obligations. We could quite easily experience a repeat of what
happened in the United States when the personal debt bomb exploded in 2008 as
the Great Recession entrenched itself in the American psyche. Always
remember; what goes up must eventually come down. Some of Canada's
largest and most unaffordable housing markets may provide painful proof of that adage
in the months and years ahead.

5 comments:

This is very ironic. When I was an economics undergrad at a US college in 2008, our labor economics professor (who is quite brilliant) lectured us on how the Canadians managed to avoid the financial crisis because of the heavier regulation of the Canadian banking system.

It's shocking to see, in real time, similar events that preceded the American crash. I hope Canada has learned enough over the past five years to avoid the same fate.

Is your business losing money because customers are unable to pay? This is where the Consumer Credit program for in-house payments comes in! This is a great benefit to customers since your customers’ payments are guaranteed by Consumer Credit. In addition, your clients will be able to get their needed services and pay for everything over an extended time period. The best part is that all of this takes about as much time as processing credit cards!

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.