Okay, so Stats Can tells us today that Canadian household debt has reached a record high 152.98%, a level relative to income that surpasses that of the U.S. and Britain and 13% higher than before the -so-called recession. But President Harper and his bulldog Flaherty continue to spin the "but we're better off" sop. At least Mark Carney is forthright in saying exactly what the problem is, as he did at the Economic Club of Toronto recently: Canadians must reduce their "debt-fuelled" spending while Canadian businesses step up to the plate and begin some serious investing. He also recognizes that whatever capital is coming from abroad is being used to to push household spending, not investment in Canada's real, industrial economy. In other words, he recognizes that the financial sector is the source of all our woe even if he is reluctant to use language that aims at the sector directly.
Given the state of the world economy and a slowing Canadian economy, how likely is business to step up? And given the new Stats Can revelations, it would seem that the deleveraging of household debt about which we learned a week or so back is not going to be a continuous process but one with ups and downs. This phenonmeon is no surprise really, for, as I've suggested before, the deleveraging process will take many years with all sorts of minor and medium crises along the way. To balance the absence of spending as deleveraging continues, however erratically, business investment, exports, government spending - some combination - has to step up with 7 % of GDP. As I've suggested, business seems reluctant to invest, and President Harper and his bulldog worship at the altar of austerity. That leaves exports in a slowing world economy.
So either way, deleveraging or increasing debt is a problem: the former takes considerable spending out the economy, a potential vacuum that business investors seem unwilling to fill, and the latter pushes households to an unsustainable debt to income ratio. Nice mess into which the financial sector, Flaherty, and all the neoclassical economic advisors to government have brought us.