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December 15, 2019 | The Mucked-up Middle

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

This week Chateau Bill brings in his autumnal economic statement. Interestingly he will do it not in the House, facing catcalls and raspberries from the oppo benches, but in a presser opposite the comatose Parliament Press Gallery. So much for accountability.

Anyway, expect him to be rosy, upbeat and yammer on about “the middle class and those working hard to join it.” As you know, we now even have a Minister of Middle Class Prosperity, a member of T2’s 38-member Cabinet. (Each minister also has a Parliamentary Secretary with bonus pay and a preferred status. This means half of the entire Liberal caucus has been granted favours.)

Morneau will talk about growth, jobs, hope and ponies. Do not count on him to dwell on revenues or deficits. The Trudeau agenda calls for a slew of new spending and no balanced budgets for the entire mandate. But there will be new and more taxes coming in the winter budget. The good news for Ottawa will be a strong US economy and robust markets pulling us forward. The bad news is this collection of financial losers called ‘citizens.’

Despite ten years of expansion, rising asset values, the best job growth in decades and the cheapest interest rates in history, Canadians have been backsliding. Savings rates have slipped while debt swells. More people are retiring with mortgages than ever before. Four in ten families are $200 or less a month from default. Never before have more young adults lived with their parents, seemingly afraid to venture forth. The middle class is turning out not to be such a hot destination.

On Friday Stats Canada announced the household leverage rate hit a new all-time high. It’s just a hair under 15% of disposable income, the majority of it for mortgages. This may not sound like a lot, but when you remove renters (35% of taxpayers) and the people without mortgages (half of homeowners), and factor in lowly interest rates, this is a big number. It suggests enough people are in serious trouble to trigger issues for everyone. Indeed, it took only 8% of debt-pickled Americans to crash that country’s housing market and send the world into a financial panic.

Eight charts Bill will not be sharing with you.

Here’s an illustration from RBC showing how household leverage has crested, despite 2% mortgages,


And, by the way, the increase debt servicing costs is outpacing income gains, as you can see in this chart from TD Economics. Just imagine if the economy stalls (wages drop) or inflation jumps (rates increase). Pooched.


And here’s a more graphic portrayal from the alarmists at It does a fine job of depicting what households have done to their finances over the past 20 years.


By the way, I forgot to mention the personal savings rate. So if you were wondering if more debt was okay because we’re just socking more into our TFSAs, RRSPs and non-registered investment accounts, well, forget it. In the 1980s we saved 20% of what we made. Now it’s 1%, and nearing historic lows.


And what about the economy? Will it save us from ourselves?

Chateau Bill will suggest exactly that. No reason to worry. Just move into the middle class and relax. But, alas, the economy is not what it used to be. Increasingly it is based on consumer debt, continued household borrowing and overspending on real estate. As this BMO chart illustrates, we are building a condo economy, in stark contrast to the US.



Nowhere in the world, according to the International Monetary Fund, have house prices jumped more relative to incomes than in Canada. In short, we are buying what we cannot afford.


And this is born out in the loans we’re swallowing to do it. This chart from Bloomberg shows household debt has returned to a near-decade level, even with the stress test and a plethora of other government measures in place to quell borrowing. Conclusion: they didn’t work.



Finally, debt in Canada is vastly out of step with the US experience. Americans went through a housing bust, deleveraged and have not resumed their bad habits – and meanwhile their economy blossomed. In Canada we escaped the real estate crash, kept borrowing and buying, never corrected our path, and have arrived at this point.


What does all this mean for you, the responsible GreaterFool reader who is not working hard to join the others? Stay tuned.


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December 15th, 2019

Posted In: The Greater Fool

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