Wallowing in Debt

Tom Locke - Insolvency Trustee in London, Ontario
June 7, 2023

Canadians are wallowing in debt, consumer, national debt, tax debt, student loan debt, all kinds of debt.  Since at least as far back as January of 2014, banks have been borrowing money (from the Bank of Canada) at less than 1% interest, until recently.  That money is then reloaned to consumers at much higher rates.

For example, bank issued credit cards carry an average rate of 20%.  That is a mark-up of some 2,000% against the rate at which the bank borrowed the money, pretty nice deal if you can get it.  Interestingly, Canadian banks have approximately 80,000,000 credit cards in circulation, and Canadians charged over $800 billion on them last year alone.

Canadian banks use sketchy sales techniques, that have been exposed by several mainstream media reports over the years.  They include, bonusing bank employees for pushing credit on people who should never have qualified in the first place.  They coerce clients to make investment decisions that are favourable to the bank, such as buying bank bonds instead of equities, and they increase rates for mortgage clients and have been known to enter higher than negotiated rates on mortgage agreements.

The bottom line is that the once trustworthy institution of banking is no longer worthy of consumer confidence and consumers must question and double every document they sign.  Pensioners are often exploited for their vulnerability by bank tellers who sign them up for credit products they should not qualify for.  Bank tellers can see that the senior only has a meagre monthly pension at a low fixed rate, yet they qualify seniors for credit cards, lines of credit and overdraft for the bonus points.

One of our 80+ year old insolvency client had a bank issued credit card that conveniently calculated minimum monthly payments over a term of 420 years.  Yes, you read that correctly, “FOUR HUNDRED AND TWENTY YEARS” – they are all doing it, and this exploitation has been normalized by the industry.  By every sense of decency and morality that really ought to be illegal.

But the math wizards at the bank operate with impunity creating the illusion of money through debt manipulation.  In fact, there is only $115 billion of actual Canadian Mint issued cash (currency) in circulation.  Perhaps these economic geniuses think that if consumers carry enough debt they will be endowed with the same magically elastic powers of longevity as the Looney Loonie.

A whole generation of Canadians have been insidiously learning to live on credit as living costs have far exceeded their ability to earn a living.  “According to Equifax, the overall consumer debt in Canada shot up to $2.32 trillion in 2022. This pretty much covers all debts outside of mortgage debt. Today’s average Canadian consumer debt at the individual level is $21,183.  Jan 24, 2023” 

Why can’t the same rate of interest prevail for the whole 25-30 year amortization of mortgage loans, as is the case in the USA and other countries?  Why is it O.K. for Canadians to go back to the banks every few years to have their mortgage rates recalculated?  The bank borrowed (from the central bank) and reloaned the money once, and once only.  A generation of first time homeowners have never imagined rates above 2% and are now faced with a massive payment surge as the banks increase rates as mortgages come due for renewal.

In 1988 the Ontario Real Estate Association issued a publication called “Monthly Payment Tables for Mortgages” that published, expected mortgage rates, from 8% – 25% only.  Bear in mind that the average rate over the past 100 years was about 7% and in 1981 consumer mortgage rates peaked at 28%.

We have previously blogged about the great (now missed) opportunity Canadians had with low interest rates.  The opportunity was to pay down or pay off debt by paying less on interest and more on principal, thus reducing debt more rapidly.  However, lenders, primarily bankers, seized the opportunity to sell debt by the bucket load.  For some bizarre reason (which only a true conspiracy theorist could unravel) if you applied for a $300,000 mortgage in 2019 you would have been turned down flat, yet without any upward income changes by 2022 you could borrow $600,000 from the bank

Canadian consumers currently owe banks, and other lenders, about 3,000% more money than actually exists, more in fact than the Canadian Mint has printed since has printed since January of 1908.  The story gets better – according to the CRA, the average Canadian income is $54,000 per year – that is the average of all reported income in Canada for 2022.  Interestingly less than ¾’s of Canadians have any income at all, over ¼ have zero income.

If we take the average income ($54,000) and multiply it by the number of tax filers, it shakes out that Canadians only earned slightly more money than they charged on credit cards.  And the story goes downhill really fast from here because some 20-25% of the Canadian workforce works for some level of government – their -income comes entirely from the tax coffers of the remaining 75%-80% of taxpayers.

Drilling down further, Tax Freedom Day falls mid-year, meaning that by the end of June every penny you have earned will be consumed in some form of taxation.  Since about half of our income goes to the government in some form of taxes the government only gets about $750 billion in revenue (and they have to pay over 20% of the workforce from that money).

The government themselves are great debt and misappropriation exemplars – they are like reverse Robin Hoods – they take from the poor to bail out corporate elites, Ford, Loblaws, Maple Foods, SNC, and so many more.  On top of that, the Canadian National debt is now the highest it has ever been and growing exponentially.  Your share is about $35,000 but even if you have the money, you are not allowed to square your debt.

The cost of servicing national debt is about $200 billion each year, and after paying that and government workers (another $169 billion) the government has about $381 billion and nearly $10 billion of that goes overseas leaving about $371 billion to use for corporate welfare and necessary social development projects.

Are you fed up with wallowing in debt?  Do you feel trapped by debt?  Would you like a solution that doesn’t mean moving debt from one pocket to another?

Stop wallowing, call 519-646-2222 or follow this link to schedule your own appointment.