In a speech this week that was as straightforward as possible, Bank of Canada governor Mark Carney told the crowd at the Economic Club in Toronto that "low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce; the greater the complacency, the more brutal the reckoning."
Mr. Carney was, of course, referring to Statistic's Canada's announcement that household debt ratios have hit a record high, and that people could get stung badly if rates increase. Statistics Canada's announcement was surely a frustrating development for Mr. Carney, who has been warning Canadians about their debts for over a year.
The debt-to-income ratio for Canadians is now higher than that of Americans - a fact which many Canadians likely refuse to believe, since their self-image is that of financial prudence compared with their Southern neighbors.
Dangerously, these record debt levels coincide with unusually high home prices and unusually low interest rates: a situation that could easily lead to the double-whammy of rising payments on falling equity values - a sure formula for financial disaster.
Meanwhile, deaf ears continue to buy new condos and pull out the plastic for Christmas shopping. It is likely that most indebted Canadians will never read this article, or, for that matter, give it a second thought even if they do.
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"It’s a matter of concern but it’s not a matter with respect to which we’re going to act immediately."
Jim Flaherty, Canadian Finance Minister, December 2010, when asked if Canadian personal debt levels are a concern.
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See also:
Canadian Debt Levels now Higher than Americans
