Figures released by Statistics Canada yesterday indicate that household debt to disposable income hit 163.4 percent in the second quarter, up from 161.8 percent in the previous quarter.
At the peak of the U.S. housing bubble in 2007, household debt to income hit a high of 170 percent. However, many analysts say that Canada’s housing market is on more solid footing than was the case in the U.S. due to higher equity levels, a smaller percentage of subprime mortgages and tighter mortgage rules
Although the above points are unarguably correct how can debt levels increasing by a whopping 56.6% in the last 10 years be part of the recipe for our financial prosperity over the next 10 years?
It’s not as though household debt accumulation is used to purchase capital equipment such as machinery and equipment that if used prudently can increase business productivity and in turn, build wealth. On the other hand I guess Joe and Mary Six Pack can increase their own personal productivity by working themselves to death putting in a lot of overtime (if available) in order to be able to continue to meet their ever growing debt obligations. I just can’t shake the picture of a hamster on a hamster wheel.
A Heavily indebted Joe Six Pack