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October 24, 2018

The headline reads “the world of easy money transformed Canada into debt nation”.  But that isn’t exactly true – it is the world of irresponsible banking that made it appear we have easy money.  We’ve said it before, Canadian chartered banks issue credit cards on repayment terms that extend over hundreds of years.  That is simply insane.

The government is afraid to provide any meaningful regulations for banks preferring to allow them to do their own thing.  Perpetual debt is the new normal as Canadians move away from the use of debit transactions and embrace credit cards as the preferred method of payment at the point of sale.

“Oh, but the only reason I use my credit card to buy a bag of milk is because I get points”.  That’s just a deflection from having to admit “I’m broke and can’t afford a bag of milk without charging it on my credit card”.

There is no “easy money” when we are talking about debt – debt always comes with a cost and it is always exploitative.  The less sophisticated you are the more vulnerable you are, and income doesn’t equate to sophistication.  The zeitgeist of entitlement is more profound than ever before.  Many millennials believe they should not be denied the opportunity to become homeowners, as if home-ownership is a right of passage.

This sense of entitlement starts with the small stuff, “I work hard, I’m entitled buy Starbucks coffee for $7.00 per day” then of course “I really need to drive to work, I have a full time job – why on earth would I stand around at a bus stop?” and “I deserve a vacation that’s why I am going to Cuba”.

But everything comes with a cost, let’s start with the coffee, $4,000.00 per year (before tax), the car loan will cost $7,500.00 per year in pre-tax dollars and the vacation about $2,000.00.  Put that together and the total is $13,500.00 per year.  Remember that 60% of Canadians earn less than $35,000.00 making those entitlements logically out of reach.  Oh, but wait, that’s the real reason why I use a credit card to buy a bag of milk – “easy money”.

The Bank of Canada has just increased the overnight rate to highest level in ten years 1.75% – soon mortgages and other loans will follow suit, driving down the price of real property and making consolidations far more difficult.