Wednesday, November 30, 2011

Combined with Harper Regime's Austerity Program, Continuous Deleveraging of Household Debt Could be a Serious Issue

House prices have been speculatively bid up to 29% over real value with all the low interest, easy credit banks have been only too willing to give us. They're just sooo good to us. But a little recent fear has begun a deleveraging of household debt in Canada - which is, relative to income, at an untenable 150%. If it is widespread, shallow, and long, such deleveaging could be an issue since it will mitigate demand, a process that will in turn affect production or supply. In other words, it will take considerable spending out of the economy. Add to this possibility the fact that, despite corporate tax cuts theoretically designed to spark hiring, corporations have merely hoarded their cash and not spent it on employing more workers or much capital equipment, both of which could have led, in turn,  to more spending as a spin-off.  Of course the Harperities are also deleveraging severely with their misguided austerity program. So overall spendings is slowly winding down, but, remember, spending generates at least 62% of our economic activity. This is a serious situation worth keeping an eye on. Here are some disturbing figures from The Globe article:

"According to the most recent data from the Bank of Canada, chartered banks in this country had $68.3-billion in personal loans outstanding in October, up from $67.7-billion in August but compared with $61.5-billion in October of last year. Credit card balances grew to $62.4-billion from $62.2-billion between August and October, and compared with $57.3-billion last October. Lines of credit rose to $229.8-billion from $227.4-billion, up from $218.9-billion a year ago.
Mortgage assets held by the chartered banks, meanwhile, hit $563.5-billion in October, up from $561.2-billion in August. But, illustrating how growth has slowed, that number was $500.2-billion in October, 2010."

Meanwhile, meaningful deleveraging to some sort of reasonable balance between debt and income for households might take a decade, some say, but realistically expect small to medium cyclical economic crises to occur instead - which is much more likely given the irrational nature of capitalism and the excessive power of the financial sector.  Banks are greedy for profit, after all, and when credit's easy, it's difficult for households to remain disciplined. It's not likely the Bank of Canada is going to raise interest rates anytime soon, but if they do, look for some serious economic fallout for overextended households - which is just about everyone.

Once again the greed of the  financial sector, supported by western governments who have fully bought into the neoclassical paradigm - as we can clearly see today by the EU's importation of a U.S. style bailout economy - the real economy and real people continue to suffer. We should never have been allowed or encouraged to borrow such exorbitant amounts.*

Note: Notice that just about all the economists consulted for mainstream media stories, with the exception of The Toronto Star,  are connected to the financial sector. Occasionally, someone likes Jim Stanford or Armine Yalnizyan are called upon, but, notice, only in conjunction with neoclassical economists, not by themselves.

Government should spend like a household  
Canadians rein in debts amid uncertainty
Economics focus: House of horrors, part 2
Canada's Real Wages Fall As Inflation Outstrips Income Gains 
*I've been writing about economics a lot lately because everything we do socially, politically, existentially is grounded in it. We are all cradle capitalists inscribed ideologically in it from birth. It needs to be hollowed out from within to create system change. Progressives, who focus on the political understandably, have to begin paying much more heed to the economic ground to which their political concerns are inextricably bound. What I see on the horizon is scary to me, especially since I don't think it will be dramatic but long and drawn out.

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