There are many threats that potentially could derail our economy, everything from weak commodity prices to a significant slowdown in the Chinese economy, which has been a great source of strength to our exports.
The greatest threat of all however, is our vulnerability to personal indebtedness, which could put in jeopardy our ability to service that debt. It has been climbing so relentlessly. Our federal budget watchdog has stated that “in coming years increasingly indebted households are poised to become the most financially endangered in many decades.”
Few realize the dimensions of the problem. Debt and interest payments will climb from 14.9 per cent to over 15.9% in the next few years. That makes households vulnerable to any shocks and cripples our ability to bring about any new spending plans in the future.
The ratio of debt to personal disposable income in the last five years has soared from 66% to 148% last year – and as of this past autumn, has escalated to an incredible 166%.
Shining in the spotlight is the fact that Canada has the largest increase in household debt relative to income of any major nation since the year 2000. The Bank of Canada alarmingly, has described this situation as the most serious threat to our financial system.
Rising house prices have attracted buyers to make purchases which in too many cases they could not afford. Furthermore, robust automobile sales were fueled by low or no interest payments and up to seven years for repayment. All this suggests that auto sales are unlikely to grow from now on. Thus, despite the unheeded warnings of the Bank of Canada, the susceptibility to a downturn continues to grow.
This emphasizes the strange optimistic attitude of the U.S. central bank in raising interest rates now. Meanwhile our Prime Minister is planning to stimulate our economy by large deficit spending.
It is about time that Canadians wake up.
Our political leaders seem oblivious to the current situation. It is time for all of us to act more prudently, and for our political leaders to do likewise to shed off the possibility of serious trouble.