Canada’s Household Debt Crisis: Blame Capitalism!

Canadian capitalism is in crisis, with household debt reaching a record high 166.9 per cent of disposable income and about 208 per cent of GDP, and wage stagnation is a primary cause.

Richard Vague told the Globe and Mail “any country whose private-debt-to-GDP ratio goes beyond 150 per cent and that has a five-year growth rate of 18 per cent or greater in that ratio experiences a financial crisis at some point.” The Globe says Canada has already passed both benchmarks in its ongoing borrowing binge.

The headlines get grimmer every week and the causes, outlined by the business press, are surely of interest to the left.

Over half of Canadians cannot save 5 per cent of their earnings, the Globe says, as they are “overwhelmed by debt.’” And, worse, the last quarter saw debt increase four times faster than incomes.

The National Post attributes this to policy keeping the Bank of Canada’s interest rate abnormally low since the 2008 crash, to incentivize a surge of lending to buoy up a struggling economy.

More fundamentally, Vice News says, debt has been used to supplement wage increases, after years of stagnation. David Oliver writes similarly for the Toronto Star:

For most over-indebted Canadians in an era of spiraling fuel, tuition and other costs, and only stagnant income with which to cope, maxing out on credit cards and the credit lines that banks were eager to offer became an irresistible means of funding everyday needs like new clothes that kids had…

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