519-646-2222More Debt is NOT the answer
It should be self evident to any rational person, that more debt is NOT the answer to Canada’s massive debt bubble. You cannot debt your way out of debt, adding debt to a debt load that is already unaffordable will not make debt affordable.
If you were silly enough to fall for the housing bubble or daft enough to jump on the debt bandwagon and over mortgage your house you have to live with your decisions, and not repeat the insanity of them. In a similar manner, the greedy investors who jumped on the government fuelled gravy train need to suffer the consequences of making bad investment decisions.
Sadly that is the only way we are going to see the economic engine of this country right itself. In the short term, we need more bankruptcies, more proposals, more solutions not more debt! Currently, and I am repeating myself again and again. insolvency filings are at an all time low, and any journalist telling you otherwise simply can’t do responsible journalism.
Canadians are carrying more debt than anyone else in the world, and we have been for decades. In the last five years consumer debt about doubled – or possibly even more. And, a massive amount of that increase was driven by much too easily available mortgage debt. Insolvency rates today are far short of those in 2019, and even more so when we adjust for the population increase.
Between 2020 and 2022 lenders were qualifying anyone with a heartbeat and a pen for excessively high mortgages. be honest with yourself, if you are going to gamble you should weigh the risks and you need to expect losses as a consequence of poor decisions. Regardless of the game, it is always rigged to protect the house, always.
Never forget the old maxim “your banker will give you an umbrella when the sun is shining, but want it back as soon as it starts to rain” and brothers and sisters it is pouring!
The government keeps floating increasing obvious and frankly foolish ideas that are designed to wipe out the middle class, prop up the banks and transfer money to the wealthy. If that is not their intention it is clearly the outcome(s) of the decisions being made.
Recently RBC gobbled up, very unceremoniously HSBC after it was being investigated for mortgage (and other) fraud problems, TD has been sued in the USA for fraud and has been fined for Fraud in Canada. Clearly all is not well with Canadian Banks in 2007/8 Canadian bailed out the banks to the tune of hundreds of billions of dollars.
Corporate welfare of all stripes in Canada needs to end and large companies need to suffer the consequences of their bad decisions in the same manner as smaller entities do. If the banks are too big to fail then regulators should break them up, sell them off and force them to operate more ethically. And that is simply “common sense”.
The extended “thirty year mortgage” idea is just one recent example of the tail wagging the dog. There are many more meaningful steps the government could take:
1. Roll back mortgage rates – for every mortgage written in the last five years – set the rate at the lowest applied during that time.
2. End short term renewals, they are not designed to save money for consumers, they are intended to increase profits for lenders, if a mortgage was written for twenty-five years, it should renew in twenty-five years (and that could be made retroactive).
3. Allow Tax relief for the interest paid on mortgages in the same manner as in the USA.
4. Follow the Quebec model, force credit card issuers to charge a minimum of 5% of the outstanding balance each month.
5. Go further, require credit card issuers to ensure that credit cards fully revolve at least once per year or suspend user privileges.
6. End the CMHC, it has failed its original mandate in any event, and become a slush fund for reckless lending by banks – the money it is currently holding should be released on a prorated basis to the provinces (from whence it came) to be used to acquire low income rental properties. Private insurance Companies can easily replace the CMHC and should be required to insure the premium payer, not the lender.
7. Eliminate income taxes for poor people – those earning less than $50,000 per year pay nothing, $51,000 – $100,000 pay 10%, $101,000 – $150,000 pay 20% $151,000 – $200,000 pay 30% and over $200,000 pay 50%.
8. Stop the HST/GST and PST – this alone would put 13% more money in the pockets of Canadians, helping to grow the economy.
When I have spoken to friends and family about these ideas, I have had them ask me “you have worked in insolvency for almost 30 years, don’t you want to see more bankruptcies and proposals?” My answer is always NO! I would rather live in a more affluent, cohesive and fair society, one in which people have real opportunities and don’t have to worry that they will not have enough money to make it through the month without relying on debt!
If you find these ideas, thought worthy and interesting, I appreciate you, if you disagree, that’s O.K. you are entitled to. But if you are interested in thought provoking ideas about how the economy could be brought back to balance, I highly recommend you check out Gary Stevenson, a young but brilliant British economist. He can also be found vlogging on YouTube.