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May 30, 2017 | Global Debt Tsunami Crests Further in April

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Another month, another dubious debt distinction for Canada.  See Canadians push past $2 trillion in debt to set a new record, again:

Canadians pushed household credit to new highs. There was a total of $2.025 trillion in outstanding debt, a 5.5% increase from last year. That’s a $104.7 billion increase in twelve months, and a $20 billion dollar increase during the first four months of 2017. The annualized one-month rate of change was 6.8%. To put it bluntly, Canadian debt accumulation accelerated in April.

Canadian households have been particularly self-destructive, but they are not alone. See Global debt woes building up to a tidal wave:

Virtually every class of US debt — sovereign, corporate, unsecured household/personal, auto loans and student debt — is at record highs. Americans now owe $1tn in credit card debt, and a roughly equivalent amount of student loans and auto-loans which, like the subprime mortgage quality that set off the 2008 financial crisis, are of largely low credit quality (and therefore high risk)…

But this is not just a US phenomenon. Globally, the picture is similarly precarious, with debt stubbornly high in Europe, rising in Asia and surging across broader emerging markets. A decade on from the beginning of the financial crisis, the world has the makings of a fresh debt crisis.

We have mortgaged future economic growth and stability for instant gratification and short-term profits for risk-sellers.  The pay-back will be deep and long.  It also reminds of J. Paul Getty’s timeless quote:

“If you owe the bank $100 that’s your problem.  If you owe the bank $100 million, that’s the bank’s problem.”

After any net equity they may have, debtors stand to lose debt in bankruptcy.  Lenders and investors, on the other hand, stand to lose assets.  The financial system is in clear and present danger of another solvency crisis; that should concern everyone.

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May 30th, 2017

Posted In: Juggling Dynamite

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