Tuesday, January 25, 2011


It is maybe the reality of our ageing demographic that causes every small tremor in economic news - Employment, Interest Rates, Manufacturing output (you name it) - to terrorize the stock market. We are the "Boomers;" the nation's largest population cohort and we're fretting whether there will be anything left for life in blissful retirement.

Perhaps sadly...well we should. Though most of the world's great economic thinkers agree that Canada is in damn good financial shape; in at least one respect we're one of the world's basket cases. Canadians are drowning in debt: In 2009 our government debt amounted to 82% of the nation's entire Gross Domestic Product (GDP), compared for example to Great Britain (68%) where the national government has just imposed Draconian restraint measures. And even the United-States, the world's economic disaster poster boy, which is just one point above us; 83.2%.

Canada's Federal government debt is as bad as ever, and climbing at the rate $135-Million per day. It peaked at $563-Billion in 1998 before the Liberal Government of Jean Chretien wrestled it back with its own drastic cuts. In the past five years it has now risen back to what the Canadian Taxpayers' Federation claims will be $567-Billion on March 31 - A new record.

That's just the Federal Government debt, add in provincial debt where some economies - New Brunswick, Ontario, Quebec (to name just three) - are their own basket cases, and Canada's total government debt will be well over $ One Trillion on March 31 when the books are closed for the fiscal year.

Lest you think that it is just our elected officials who are doing a bad job at minding the nation's purse strings - They are - But the rest of us are "maxed-out!" Spending by Canadian consumers over the past two years is the most leveraged in history. Canadians hold more than their own $-One Trillion in mortgage debt alone; up about 8% since 2009, and an eye-popping 194% since 1995. It's not just the family credit cards that are maxed-out either. Last year (2010) about 2,000,000 Canadians took out equity loans from the value of their generally mortgaged homes - The average withdrawal was $46,000.

Fueled by historically low mortgage interest rates, it has been Canada's housing market which buffered the country against the economic recession which shook most other parts of the developed world. But the pent-up demand for an average Canadian home which is now priced at $331,000 is rapidly evaporating amongst the record personal, national and provincial debts we have accumulated as a nation. It may be later than our American cousins' or the homes of our ancestors in the United Kingdom and in France; but the party is probably over for us too.

Just this week the International Monetary Fund (IMF) downgraded Canada's GDP growth predictions for 2011 to 2.3%. In recessionary times, that ain't bad but it pales against the IMF's world economic predictions of 4.4% growth. At the very height of the recession one Canadian Imperial Bank economist called Canada..."a safe harbour in today's global economic storm." For the most part, witness to the turmoil abroad, Canadians were pretty smug about our country's fiscal position.

If our reasonably safe economy was fueled by an unprecedented housing boom which has now spent itself out; there may be good reason to fret that it was all along an illusionary boom built on a somewhat expensive house of cards.

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