Newspaper article The Canadian Press

Editorial Exchange: Debt Grows Ever-More Worrying

Newspaper article The Canadian Press

Editorial Exchange: Debt Grows Ever-More Worrying

Article excerpt

Editorial Exchange: Debt grows ever-more worrying


An editorial from the Winnipeg Free Press, published Dec. 22:

Canadian households continued borrowing heavily during the fall, Statistics Canada reported this month. Mortgage loans and consumer loans both increased from already high levels so household debt reached 164.6 per cent of disposable income in the third quarter of the year, up from 163.3 per cent in the second quarter.

This was the logical response of Canadian families to the economic realities around them and to the mixed messages the authorities have sent out. The result is a level of debt that will be difficult to reduce when the economic wind changes and lenders start calling in their loans.

The Bank of Canada has kept its administered interest rate steady at one per cent for the last two years, with the result that banks are able to lend to their customers at unusually attractive rates. At the same time, Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have told the public again and again not to go too deep into debt because interest rates will eventually rise and they may be caught with more debt than they can handle.

The net effect is like a merchant who holds a clearance sale, posts low, low prices in the display window and then begs people not to buy. A few customers might heed the sombre warning, but a great many look at the price tag and the buying opportunity and make their own decision.

The central bank will start raising interest rates when it sees signs inflation is going to become a problem, but the bank evidently sees no such signs.

In its Dec. 4 interest rate announcement, the bank said: "Both total and core inflation are expected to increase and return to two per cent over the course of the next 12 months as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored."

Canadian consumers could reasonably conclude low interest rates have a good distance to run yet. …

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