519-646-2222The Precarious State of Canada’s Debt Economy
According to the Bank of Canada, approximately 3 billion banknotes were in circulation across the country in 2022. These notes include denominations of $5, $10, $20, $50, and $100. In a theoretical best-case scenario—assuming all notes were $100 bills—the cash-based economy would total less than $300 billion. Realistically, with a blend of lower denominations, the actual value is considerably lower.
Yet, Canadians earn and spend vastly more than the total value of physical currency. This discrepancy points to a structural paradox in the economy. To understand it, one should explore the mechanics of Fractional Reserve Banking and Modern Monetary Theory.
According to the Canada Revenue Agency (CRA), Canadians earned approximately $1.7 trillion in 2022. After accounting for nearly 44% in taxes, disposable income amounted to about $950 billion.
The Canadian Bankers Association stopped publishing detailed credit card statistics after 2019. However, by analyzing their last public data and applying five-year growth trends, it’s reasonable to estimate that in 2022 Canadians charged close to their total disposable income—nearly $950 billion—on the country’s approximately 100 million bank-issued credit cards.
Changing Definitions for Political Convenience
Over the past decade, definitions central to economic and social policy have been repeatedly altered—often for political purposes. This shifting of terminology can create misleading public impressions. Consider the following examples:
- Vaccine: Once meant a microdose of virus; now includes mRNA gene therapy.
- Poverty Line: Shifted from the Low-Income Cut-Off (LICO) to half of the median income.
- Full-Time Employment: Formerly 40+ hours for a single employer; now 30+ hours across multiple employers.
- Disposable Income: Previously after-tax income; now increasingly used to mean gross pre-tax income.
- Mortgage Debt: Once exclusive to home purchases; now includes any borrowing against property.
- Consumer Debt: Initially defined as borrowing for consumables or vehicles; now includes virtually all personal borrowing.
- Business Debt: Previously applied to corporate borrowings; now includes loans taken by individuals to start businesses, yet often not categorized as consumer debt.
These evolving definitions carry significant consequences. In 2025, the LICO for a single person is $2,666/month—far above the newly defined poverty line of $1,596. By simply redefining poverty, the government claims to have “lifted” many Canadians out of it.
Similarly, “full-time employment” statistics have been padded by redefining the standard, with about half of all income reporters now considered full-time workers—regardless of actual job stability or income sufficiency.
When applying for a mortgage, your “disposable income” is now often equated with your gross income, which continues to erode under rising taxes. The result? A distorted view of economic health. With the mean annual income at $57,000 the old fashioned way of calculating disposable income would reduce that to a mere $32,000 per year.
These days Mortgage Debt is no longer sacrosanct, homes are now treated as ATMs with multi layered mortgages, and mortgage debt is lumped in as “Consumer Debt“. Ironically, small business loans are still counted separately as “Business Debt” even though the loans are taken out by consumers, frequently trying to create self-employment opportunities. If we lump all debt owed by consumers into one stock pot we estimate it would be in excess of $6 trillion.
Too Many People, Not Enough Money—and Far Too Much Debt
The government’s immigration policies are frequently framed as progressive but often mask more strategic economic objectives. For instance, a growing population boosts GDP by increasing overall spending. A surge in international student enrollment has fueled growth in the post-secondary sector, with foreign students paying up to three times more in tuition than domestic peers.
Newcomers are aggressively courted by banks. Many are offered fee-free banking, $5,000 credit cards, and $15,000 personal lines of credit, often without employment verification or credit history checks. These offers extend even to 13-year-olds who immigrated five years prior.
In 2022, Canada issued 4,789,693 travel documents to temporary foreign workers, international students, and visitors. The Newcomer banking programs introduce many to credit and buy-now-pay-later practices, often without financial literacy or proper guidance.
If each 2022 newcomer received a credit card and line of credit, their total potential indebtedness could exceed $96 billion, excluding interest. While this may stimulate GDP and enhance bank liquidity, it’s detrimental to the individuals involved—and the broader economy.
Real Estate Speculation and Financial Self-Liquidation
Immigration has also helped drive a FOMO-fueled housing boom, as new arrivals require housing, intensifying competition. In immigrant-heavy markets, loose lending practices became rampant. Financial institutions engaged in questionable behaviors, prompting HSBC’s exit from Canada amid RCMP investigations into mortgage fraud. TD Bank was also fined $4 billion by U.S. regulators for fraud and money laundering.
The federal government raised the cap on RRSP withdrawals under the Home Buyers’ Plan to $75,000 per person. A couple could now liquidate up to $150,000 in retirement savings for a down payment. While this helps access homeownership, it depletes retirement reserves—an issue we’ve discussed before as financially risky and shortsighted.
Even as far back as 2013, the International Monetary Fund warned that Canadian housing was overvalued by 60%. But optimism surged: interest rates were low, prices were rising, and demand was relentless. Many Canadians attended workshops led by mortgage brokers, realtors, and self-proclaimed investment experts hoping to cash in.
Yet, the warning signs were clear to those familiar with past booms and busts. As reality set in, hopeful investors continued to lend on speculative promissory notes, expecting returns exceeding those of RRSPs or TFSAs. Unfortunately, low-level lenders—especially those under $150,000—often lacked the knowledge or professional advice needed to navigate these complex risks.
Investment portfolios were gutted to buy rental units, flip houses, and join risky joint ventures. In many cases, promissory notes replaced traditional mortgages, allowing borrowers and lenders to bypass suitability assessments. As the market cooled, tens of thousands lost money, prompting a wave of finger-pointing.
A Crisis for Small Investors, a Windfall for Institutions
Many small investors and retirees were wiped out, while larger, more sophisticated investors escaped relatively unscathed—often fully secured and better diversified. As is frequently the case, those with capital benefit from systemic volatility, while others bear the losses.
Despite political rhetoric, Canadians have not been disciplined savers for decades. From home equity withdrawals to RRSP collapses and pension liquidation, savings have long been leveraged in pursuit of speculative gains. For those nearing retirement, the lure of double-digit returns proved irresistible—and often fatal to their financial future.
The Ongoing Financial Crisis
Canada’s financial instability is deepened by a rising wave of fraud, predatory investment schemes, and misinformation. Middle-class wealth is being siphoned upward.
Meanwhile, institutional investors and private equity firms are acquiring vast portfolios of residential property, turning homes into rentals and families into long-term tenants.
In this precarious landscape, bank liquidity, GDP illusions, and political spin mask a growing crisis. Without meaningful reform, ordinary Canadians will continue to pay the price—while wealth, once again, consolidates at the top.
There is no path out of debt for Canadians, insolvency filings provide only temporal relief – no sooner is the proposal paid out or the bankruptcy discharged and the debtor is already racking up debt again. It isn’t so much changing attitudes that are required to turn our debt crisis around as it is meaningful legislation, including breaking up the banks, permitting competition and regulating lending.
The federal government is currently engaged in plans to roll out a Universal Basic Income (UBI) with a Bill currently before the Senate. Cities across the country are embracing the notion of the 15 Minute City which will effectively create high density living arrangements with questionable human value. Will these dystopian efforts succeed in improving life for Canadians: this writer is very doubtful.