News Article: Canadians Borrowing Passtime, really?

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Canadians Borrowing Passtime, really?

 

Kelly McParland: Canadians turn borrowing into a national pastime

Kelly McParland | Nov 15, 2012 10:08 AM ET | Last Updated: Nov 20, 2012 9:53 AM ET
More from Kelly McParland | @KellyMcParland

Rod MacIvor/Ottawa Citizen
Rod MacIvor/Ottawa CitizenNo, we can't afford it, but so what. It's Canada ... buy the sucker anyway

Mark Carney, you can save your breath. Tell Jim Flaherty to save his as well. Canadians just aren’t going to listen. The thumbs are in the ears. The iPod is too loud. The kids are making noise and the TV is on high. Even if they hear you, they’re not going to let it register: they’re going to keep borrowing and that’s that. Anything else you two would like to discuss?

Mr. Carney, the Bank of Canada governor, and Mr. Flaherty, the minister of finance, are united in insisting Canadians are too deep in debt and need to cool off on the borrowing for a while. They raise the issue at almost every opportunity. Carney admits he can get a bit boring, talking about it all the time. But it’s important, he says … no, it’s vital. Canada’s debt-to-income ratio is 1.63-to-one, which is known in official economic terms as “suicidal.” Or, as Jeffrey Schwartz, executive director at Consolidated Credit Counseling Services of Canada, told the Vancouver Sun, “we’re setting ourselves up for disaster.”

Yes, Jeffrey, that may be. But Canadians aren’t going to listen. Just as Mark or Jim.

According to TransUnion Canada, a credit reporting agency, non-mortgage debt has been growing at a faster rate than ever, even as Ottawa has stepped up its warnings. In the third quarter of 2012 it increased 4.6 percent compared the the same period a year earlier, the fastest rate of growth since the last quarter of 2010.

Joe Average Canadian now owes $26,768 (on top of the mortgage, remember). Worse, Joe’s carrying $3,573 on his credit card, which is just flat-out nuts unless you consider being gouged at usurious interest rates a boon to society. You want to tack more debt on your card? You might as well just phone of the card company now and give them the number of your bank account and your ATM password. Here, take the money, it’s yours. (British Columbians, by the way, are the worst debt fiends in the country. The average consumer debt there is $38,837, more than $10,000 above the rest of the country. Boats are expensive, I guess).

Thomas Higgins, TransUnion’s vice-president of analytics and decision services (yes, decision services. Don’t ask me what it means. Maybe if you can’t decide whether to buy something or not, you call him up and he makes the decision for you) tells the Sun the reason for the increased borrowing is both low interest rates and a reduction in scary economic headlines. “With less bad news coming out of Europe, the U.S. posting growth and Canada reporting a healthy jobs market,” people think the coast is clear, the paper says.

Uh, yeah. Well, folks, the non-scary European news today is that the 17-member Eurozone is back in recession, there are anti-austerity riots in Greece, and even Germany’s pallid growth rate has been cut in half and is down to less than 1% on an annual basis. And the U.S.? Two words: Fiscal Cliff. You don’t have to tell Wall Street, where the market tanked on Wednesday for fear Congress is still too lunkheaded to avoid going over the edge.

But Canadians? Hey, we’re not worried. Income growth is stagnant, the housing market is cooling (meaning we’re not as rich as we think we are) and Flaherty says he can’tbalance the budget after all because commodity prices are suffering. But people are still managing to cover the monthly payments, so why worry? We’re already borrowing four times faster than the rate of inflation, and Christmas is coming, so let’s all just stick that concern in a sock and put it in a drawer until later. The only thing that seems to bother us, weirdly enough, is using old bills.

Schwartz says it’s encouraging (at least a little) that much of the borrowing is for car loans or lines of credit, which are at least cheaper than credit card loans. But even on that front trouble is brewing. According to Robert Varga, president of auto insurer Walkaway Canada Inc., “negative equity has become an epidemic.”

Negative equity is when you buy a car you can’t really afford, stretch the payments out over a longer period to make them more digestible, then end up with a car worth less than the amount you still owe and therefore can’t trade it it in. The car companies are feeding the situation with the kind of inventive “don’t worry, things will be okay” loans that helped the U.S. housing market collapse in rubble. But it’s working: October wasthe best month ever for Canadian automakers, and loans for terms longer than six years are up 57 percent.

Great eh? You bet. Especially since the horizon has nothing but good news.

National Post


Date Posted: Tuesday, November 20, 2012

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