519-646-2222Why Debt Doesn’t Go Away:
Have you ever wondered why debt doesn’t go away, why your debt continues to grow? There are a lot of reasons we have become debt-dependent but they mostly relate the profitability of debt, high taxation and stagnant incomes. Debt is most likely the largest single industry in Canada – debt is ubiquitous, we use it to buy houses, cars, groceries, furniture, vacations, to start small businesses.
When was the last time you managed to get through a week, a month, or even better, a year without using debt? Fifty years ago, pretty much the only people with credit cards were wealthy, had assets and money in the bank. The Canadian middle-class achieved their financial goals through hard work – starting a small business often mean holding down a regular full-time job while getting started as a side gig.
If you wanted to buy a house you needed a larger downpayment and more financial security (income), fifty years ago a single income could usually support a family. People used to fix up old cars rather than buy new ones, family vacations didn’t mean flying to Mexico or Cuba every year, they were more inclined to be a weekend away at a friend or relative’s cottage.
Debt started its creep into our lives in the late 1970s and really started to ramp up by the mid-1980s. Banks were initially far more cautious with issuing credit cards than they are today, but they watched as they lost financing opportunities and in-store financing started proliferating the market space. Zellers, Sears, Hudson Bay, Canadian Tire, Eatons, the Future Shop and many more, offered their own credit cards at very high interest rates to mitigate their risks.
The result was that stores were making profits in two ways, the upside from the sale of goods purchase at wholesale prices and the interest paid on financed purchases. Profits soared into the early 1990s until retail credit was challenged by cheaper, more attractive, bank credit offerings, including overdraft protection, lines of credit, credit cards, and consolidation loans. The bank rates were typically much lower than the retailers.
The shift in financing from internal to external hit retailers’ bottom line, they were forced to contract, sell off their financing departments and reduce capacity. This meant, amongst other things, job losses as companies cut staff, lowered salaries and reduced benefit packages. Retail salaries dropped, some remained propped up by commissioned sales but mostly they simply fell slowly and incidiously.
Canada is a sparsely populated country – the majority of the population lives along the southern border but there is no high-speed transportation network, to move goods from coast to coast takes a week or more along weaving, indirect highways – battling inclement weather for six months of the year. We are not a major target for large corporations, we do have cheaper labour rates than our neighbours, but anything we manufacture is sold in another country.
To attract corporate investment the government (at all levels) offered incentives, subsidies, tax relief, grants and guarantees. There is no other reason for many companies to come to Canada, there is not enough business (population) in this country, and there are cheaper labour pools in Asian countries. During the 1990s the view was that Canada might profit from being managers, white collar workers, through finance, insurance, equity management, banking, etc. Less attention was given to manufacturing.
In fact during that time American auto manufacturers started closing down Canadian operations and moving them to China, and other Asian countries with lower costs all around, cheaper labour cheaper materials, lower cost construction, etc. Canadians had a well established expectation of what it meant to be middle-class, as incomes dropped they maintained the same lifestyle, instead of paying directly they funded it through accessible credit.
As people got backed up on credit cards at 15% – 21% interest rates they consolidated at lower rate fixed term loans. Bankers initially, and may still, insisted that credit cards being considered get cancelled. But even though the cards were returned to the lenders by the bankers along with a request to cancel, the lenders promptly sent new cards to the consolidators. After all why should the banks have all the fun:
Canadians were, and still are, trapped in a vortex of low, stagnant, income, high taxes (from funding corporate welfare) and now interest paid on almost every purchase. The use of second, third, fourth, and even fifth mortgages and HELOCs grew exponentially on the expectation that real estate values would always increase. Home ownership was made easier and easier allowing first time home buyers to use only 5% down – resulting in 100% (+) mortgaging in some cases. Since Canadians could not afford to save their downpayment the government made safe RRSP retirement investments available for liquidation.
Prior to the 1970s the attitude towards debt was very different than it is today, very few houses had multi-layered mortgages. In fact most homebuyers would work hard, scrimp and save to pay down their mortgages earlier than going the full term. After making the final payment on the mortgage they would invite their friends and family over for a “mortgage burning party”.
Wikipedia speaks to this phenomenon as starting in the 1940s: ‘The burning of a mortgage was depicted in the 1949 MGM Tracy-Hepburn comedy Adam’s Rib — the mortgage document providing the flame for a celebratory hotdog roast.[6] A burning of the mortgage served as the opening scene of the 1969 Mayberry R.F.D.episode “Emmett’s Retirement”. The concept of a mortgage burning party was at least briefly referenced in a 1975 episode of All In The Family, “Mike Makes His Move”.[7] Mortgage burnings were also the premise of a 1977 episode of Eight Is Enough, “Mortgage Burnin’ Blues”, and a 1982 episode of M*A*S*H, “Settling Debts”.“
Todays insatiable appetite for an easy way out, more debt, buy today pay next year – has lead to homes being used as ATMs to keep recycling debt. Sadly debt is the most common method of payment for necessities – food, groceries, clothing, transportation and even entertainment. The reality is, unless you are earning higher six digit incomes, you simply can’t afford to live in Canada without debt!
Blame the Boomers, blame the GI Gen, blame the Liberals, the Conservatives, blame the immigrants, the “pick a religion” – but never blame the “man in the mirror“. Your parents were Boomers, and now you are spending their hard earned and well saved pension monies to buy your overpriced house that you simply cannot afford on your income.
Some years ago I “gave” my son a seven year old car – no cost, no taxes payable – it was given for “love and affection” so not subject to HST. For the next couple of years it became a bit of a family joke to listen to him complain about paying for repairs “geez, that piece of junk cost me $300 for new ball joints” – yet he put about 200,000 kms on the car before it turned into a Freddie Flintstone Mobile. Somehow, he, like many of his generation, missed the point “he didn’t have to pay $600-$900 per month for new car“.
“There must be some way out of here, Said the joker to the thief, There’s too much confusion, I can’t get no relief” – Lyrics by Bob Dylan.
“Money, it’s a crime. Share it fairly, but don’t take a slice of my pie. Money, so they say, is the root of all evil today. But if you ask for a rise, it’s no surprise that they’re giving none away...” – Lyrics by Pink Floyd.
Year over year for more than three decades debt has grown exponentially – now we are all caught in the same debt trap. Bankers and economists created the profit models that brought us all here, but they are incapable of finding the way out without admitting to their role in ruining a viable economy.
How do we get out?
Changing rules, regulating lenders, protecting consumers, ending corporate welfare, reducing bureaucratic bloat, tax wealth (not a a few million – tax the billionaires). The very rich have a plethora of tax dodges that aren’t available to ordinary people – one is borrowing money at a preferred customer rates from major banks. Let’s say a wealthy person took $10 million of his company and paid taxes at a marginal rate of 43% – that would equate to $4.3 million in taxes. But borrowing money at a low rate say 2% – 3% interest per year is far cheaper than paying the taxes. And, it is legal!
Changing tax laws would ensure a more even contribution, some argue it is unfair to tax wealth, especially unrealized wealth – the growth in wealth that is not being cashed out). The problem is, as noted above, the wealthy never need to draw down on their assets – they can benefit from access to cheap debt and even have repayment deferred indefinitely.
Wealth has its limits, a working person who scrimped and saved to own a home and to have some form of pension set aside for retirement should not be subject to a wealth tax, in fact their entire pension should be exempt from taxation, lessening the growing social burden of healthcare for the aged. On the other people like the world’s richest man, have reportedly seen their un-taxable (under our current regime) wealth grow at an incredible rate.
According to Google: “Elon Musk’s net worth experienced a massive surge, growing from under $30 billion in early 2020 to over $
400 billion by December 2024. As of early 2026, he is the world’s richest person, with his net worth estimated between
$
800 billion and over $
850 billion, driven by gains in Tesla, SpaceX, and xAI.“
Google also reports on Musk: “According to leaked IRS data analyzed by ProPublica, Musk paid $0 in federal income taxes in 2018 and has historically paid very little relative to his wealth growth. While a specific figure for the full 2020 tax year has not been publicly confirmed in official records, he was famously “cash poor” that year and pledged to sell his physical possessions, meaning he likely did not realize significant taxable income.“
Musk himself in a social media post said “It’s true the system favors asset-based wealth, and yes, tax laws are complex (and often outdated). I don’t take a salary because I prefer to reinvest in innovation— rockets, EVs, Al, sustainable energy-not yachts or mansions….I agree we need smarter tax policy…Let’s work toward a system that rewards creation and fairness.” – Elon Musk
A tax system that is overly burdensome on lower income, and asset, individuals is economically self-destructive – think about Jeff Bezos who is also one of the wealthiest people in the world, and who in a sense may be even more relatable to consumers. According to Google: “Bezos’s fortune “exploded” in 2020 due to the pandemic-driven boom in online shopping, adding roughly $74 billion to $75 billion to his net worth during the year, ending 2020 with a total wealth of approximately $187 billion to $190 billion.“
Now Bezos’ fortune grew out of his retail empire, selling low cost goods online with rapid delivery time being the model of success. Most purchases are made using some form of credit. Think about that, not only are customers paying for the goods and the delivery they are also paying interest – where does that money come from and where is it going? What is the economic cycle?
Ordinary people are shifting money, not just money they currently have but money they have yet to earn in future years, into the coffers of a massive corporate enterprises that are selling them stuff they probably don’t need. The economic impact is an upward shift of income and assets (mortgage debt is self-liquidation of assets) to retailers, away from local businesses, and financiers. The money is moved directly out of the local economy impacting jobs and incomes.
At what point, and these are rhetorical questions, does this upward shift become untenable? How long before we run out of jobs? What happens when you no longer have access to new debt? Will you have any choice but to stop buying? What becomes of Amazon, will it reach a terminal velocity?
According to Google: “In January 2025, Amazon announced it is closing all seven of its warehouses and delivery facilities in the province of Quebec. These closures will eliminate approximately 1,700 permanent full-time jobs, along with 250 temporary positions. The move affects one fulfillment center, two sorting centers, three delivery stations, and one AMXL (extra-large item) facility in the Montreal area.“
We can already see the future, job losses accompanied by more debt and greater short-term profits for Amazon, achieved through cost reductions. Banks in Canada have contracted their services, closed branches, laid off staff, removed ATMs, to maintain profitability by cutting services. These are not positive signs of a vibrant balanced economy, indeed quite the contrary. Yet, in the short term profits are reported on balance sheets, bonuses are declared more wealth drips away from the poor to the rich and the world is facing a severe economic decline.
Why doesn’t debt go away: The answer is “it can’t” our entire economy is predicated on debt, and the harder it becomes to repay, the more financial rules change to keep you wallowing in it! We have crossed the threshold from which you cannot possible earn enough money to dig your way out, you have already pledged (at least) next year’s income to buy stuff yesterday.
A major paradigm shift is needed to re-set our economy – the 1950s is the model we should look toward – the GI Generation enjoyed the very best of economic times, a burgeoning middle-class. We should carefully analyze the differences between then and now. Change is possible, but regardless of political stripes there exists no political will to do the heavy lifting.
Wealth tax, responsible lending, terminal corporate welfare, reduced taxes, less bureaucracy, meaningful consumer protection these are a few of the things that must be in place before we address the issue of why debt doesn’t go away. In Canada today the CRA can assess you for taxes based on a “deemed disposition” – this applies if you leave the country and sell your furniture – you must pay taxes on an arbitrarily assessed value:
“When you leave Canada permanently and cease to be a tax resident, the Canada Revenue Agency (CRA) considers you to have sold most of your capital property at its fair market value (FMV) on the date of departure, even if you did not actually sell it. This is known as a deemed disposition or departure tax.” But they hesitate to assess multi national corporations doing in business in Canada, registered in Ireland, and supported by Canadian corporate welfare. Why can’t we logically impose a wealth tax, based on a deemed disposition?
One need only examine the Panama Papers and the infamous KPMG Isle of Man scam to see the preferential treatment given to the wealthy while average Canadians are overly taxed, doggedly pursed and grossly underpaid, while forced to be reliant on debt servitude just to exist. Ironically, the primary goal of almost all bankrupts in Canada is to re-establish debt! Why? To return to the middle-class lifestyle expectation that is engrained into our cultural identity – it simply doesn’t exist without debt.