Canada debt spotlight

14 posts / 0 new
Last post
SeekingAPolitic...
Canada debt spotlight

$$$

Issues Pages: 
Regions: 
SeekingAPolitic...

You hear a lot of talk of government debt being a problem but you rarely hear about other sectors of the society having a debt problem.  Over the last few years there has been some talk about the household debt but that is new to the debate. So lets talk about debt in Canada.

 

Stats Can provides some good data in Table 378-0122 to analyze.  The table is organized by dividing up total debt in 8 sectors in Canada

1.       Households

2.       Non-Profit institutions serving households

3.       Non-Financial Private Corporations

4.       Non-Financial Government enterprises

5.       Federal General Government

6.       Other levels of general government

7.       Non-Residences

8.       Domestic Financial Institutions

I will look at middle of 2008 debt numbers

“””””””””””””””””””””  2012 debt numbers

“””””””””””””””””””””  2016 debt numbers

Then I will compare them in absolute and relative terms.

 

1. Households are broken down In 3 parts. Unit of measure million  ($) dollar

Consumer Credit

Mortgages

Non-Mortgage Loans

Sample Date Middle– Consumer Credit – Mortgages – Non-Mortgage Loans – Total Households debt

2008- 424/792/072/1,289

2012- 514/1,044/080/1,640

2016- 585/1,293/093/1,972

Debt increase Date/absolute/relative terms.  Overall Household debt

2008-2012/351/27% ******351 divided by 1289 provided a decimal then * 100 = %

2012-2016/332/20%******332 divided by 1640

2008-2016/683/52%*******683 divided by 1289

Lets drill down to Consumer Credit and Mortgages

Debt increase Date/absolute/relative terms. Consumer debt

2008-2012/090/21% ******090 divided by 424

2012-2016/071/14%******071 divided by 514

2008-2016/161/38%******161 divided by 424

Debt increase Date/absolute/relative terms. Mortgage debt

2008-2012/252/32% ******252 divided by 792

2012-2016/249/24% ******249 divided by 1044

2008-2016/501/63% ******501 divided by 792

-Mortgage borrowing is growing almost 2 times compared to consumer credit. 

-Canada households are borrowing less on a relative basis than they did in the 2008-2012.  But in absolute terms borrowing is still significant.  Less borrowing/lending means a slowing economy. 

(Factoid)it took the household sector 8 years to borrow 683 billion between 2008 and 2016 but it took many decades to borrow the 1.289 trillion that the Household sector borrowed before 2008.

 

One more thing can someone look at the numbers

2008-2012/351/27% ******351 divided by 1289 provided a decimal then * 100 = %

and see if I am correctly calculating the numbers(am I using the correct method) its been a long while since I did stats course. 

 

I will finish the rest of the seven sectors over the weekend.

 

 

Sean in Ottawa

Sorry I cannot follow your math or methodology -- please explain this in detail before doing all this work. We need to know what youa re trying to get from dividing these numbers as you are.

It sounds interesting and I want to understand it.

Thanks

SeekingAPolitic...

SeekingAPoliticalHome wrote:

You hear a lot of talk of government debt being a problem but you rarely hear about other sectors of the society having a debt problem.  Over the last few years there has been some talk about the household debt but that is new to the debate. So lets talk about debt in Canada.

 

Stats Can provides some good data in Table 378-0122 to analyze.  The table is organized by dividing up total debt in 8 sectors in Canada

1.       Households

2.       Non-Profit institutions serving households

3.       Non-Financial Private Corporations

4.       Non-Financial Government enterprises

5.       Federal General Government

6.       Other levels of general government

7.       Non-Residences

8.       Domestic Financial Institutions

I will look at middle of 2008 debt numbers

“””””””””””””””””””””  2012 debt numbers

“””””””””””””””””””””  2016 debt numbers

Then I will compare them in absolute and relative terms.

 

1. Households are broken down In 3 parts. Unit of measure million  ($) dollar

Consumer Credit

Mortgages

Non-Mortgage Loans

Sample Date Middle– Consumer Credit – Mortgages – Non-Mortgage Loans – Total Households debt

**** Part A 2008- 424/792/072/1,289

**** Part B 2012- 514/1,044/080/1,640

2016- 585/1,293/093/1,972

 

For Example

2oo8

consumer credit was 424 billion-debt

mortages was 792 billion-debt

non-mortages was 72 billion-debt I dont expand this because it mininal in the whole scheme

total household debt 1.289 trillion which composed of consumer debt + mortages + non-mortages

 

Debt increase Date/absolute/relative terms.  Overall Household debt

2008-2012/351/27% ******351 divided by 1289 provided a decimal then * 100 = %

2012-2016/332/20%******332 divided by 1640

2008-2016/683/52%*******683 divided by 1289

Ingore relative numbers its absolute all numbers are absolute semantic error on my part

2008 to 2012 overall housedebt increased by 351 billion

Above Part A 1289 million total household debt 2008

Above Part B 1640 million total household debt 2012

1640 minus 1289 gives the change over 4 years which was 351 billion debt

I take the 351 divide by 1289 (Above Part A 1289 million total household debt 2008) to get the precentage change.  351 billion represents .27 then * by 100 and get 27% increase in total household debt.  351 equals 27% of 1289 which is the increase of total household debt from 2008 to 2012.

All other calculations with % are done with this method.

Lets drill down to Consumer Credit and Mortgages

Debt increase Date/absolute/relative terms. Consumer debt

2008-2012/090/21% ******090 divided by 424

2012-2016/071/14%******071 divided by 514

2008-2016/161/38%******161 divided by 424

Debt increase Date/absolute/relative terms. Mortgage debt

2008-2012/252/32% ******252 divided by 792

2012-2016/249/24% ******249 divided by 1044

2008-2016/501/63% ******501 divided by 792

-Mortgage borrowing is growing almost 2 times compared to consumer credit. 

-Canada households are borrowing less today than they did in the 2008-2012.  Less borrowing/lending means a slowing economy. 

(Factoid)it took the household sector 8 years to borrow 683 billion between 2008 and 2016 but it took many decades to borrow the 1.289 trillion that the Household sector borrowed before 2008.

 

One more thing can someone look at the numbers

2008-2012/351/27% ******351 divided by 1289 provided a decimal then * 100 = %

and see if I am correctly calculating the numbers(am I using the correct method) its been a long while since I did stats course. 

 

I will finish the rest of the seven sectors over the weekend.

 

 

 

ok i hope this helps

Sean in Ottawa

I only found the tables 2013-2016 so cannot follow your figures right through.

 

First the figure 1,972 for 2016 is not the total households debt but the total households -- which is why you divide the debt figures by this number to get the level of indebtedness per household.

Secondly these figures are deceiving if you do not use some kind of constant numbers -- you have two clear chocies -- first to adjust for inflation or second to adjust for earnings. Stats Canada offers both. This should be done before comparing the figures for one year with another.

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

SeekingAPolitic...

Sean in Ottawa wrote:

I only found the tables 2013-2016 so cannot follow your figures right through.

 

First the figure 1,972 for 2016 is not the total households debt but the total households -- which is why you divide the debt figures by this number to get the level of indebtedness per household.

Secondly these figures are deceiving if you do not use some kind of constant numbers -- you have two clear chocies -- first to adjust for inflation or second to adjust for earnings. Stats Canada offers both. This should be done before comparing the figures for one year with another.

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

 

First part I guess I will give it more try.

We are talking about debt and credit, why would you try measure inflation of debt?  Debt is fixed, it grows when people borrow and goes down people pay it off.  Stats Cans provide some inflation corrected data like GDP but why or how would measure infaltion of debt?

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

Can you expand on this?

Sean in Ottawa

SeekingAPoliticalHome wrote:

Sean in Ottawa wrote:

I only found the tables 2013-2016 so cannot follow your figures right through.

 

First the figure 1,972 for 2016 is not the total households debt but the total households -- which is why you divide the debt figures by this number to get the level of indebtedness per household.

Secondly these figures are deceiving if you do not use some kind of constant numbers -- you have two clear chocies -- first to adjust for inflation or second to adjust for earnings. Stats Canada offers both. This should be done before comparing the figures for one year with another.

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

 

First part I guess I will give it more try.

We are talking about debt and credit, why would you try measure inflation of debt?  Debt is fixed, it grows when people borrow and goes down people pay it off.  Stats Cans provide some inflation corrected data like GDP but why or how would measure infaltion of debt?

Level of borrowing/lending is not in itself a measure of economic momentum even if it is used as such. It is an indication but when there are variables like ease of borrowing this could result in equal spending without borrowing: for example if you total all spending (a real indicator) the ratio of spending on debt service vs spending on items where no borrowig is required could change. A family choosing to spend $1000 on restaurants rather than a mortgage would in theory be creating the same level of economic activity.

For borrowing and spending to be an accurate indicator of economic activity you have to presume that the rules of access have not changed and the preference for debt vs other spenidng has not changed.

Can you expand on this?

First the purpose of debt levels is the proportion they are and the meaning of what a dollar is. It makes sense, therefore, to compare debt levels from one period to another after adjusting to relative dollars. As things increase you would expect debt levels in dollar terms to as well.

Sean in Ottawa

If people borrow less but spend the same amount the economy is not suffering -- it may be that people choose to buy smaller scale items in full rather than over time. Borrowing and lending is an indication but if there are other changes it may not be a valid one.

If instead of buying houses people bought furniture or spent money on renovation projects the economy is not worse off.

epaulo13 epaulo13's picture

The Rise of the American Bondholding Class

The history of class conflict, power and inequality in the United States has always been intimately bound up with the public debt. Already during the War of Independence (1775-‘83), revolutionary forces accumulated debts of $54 million,

quote:

Since the early 1980s, and especially since the onset of the global financial crisis, there has been a rapid concentration in domestic ownership of the public debt. Specifically, the stunning increase in concentration has taken place in favor of the now-infamous top 1 percent of US households and the top 2,500 US financial corporations. Distribution of the public debt is tightly correlated with the distribution of wealth more generally. In other words, when the share of wealth owned by the top 1 percent and large corporations increases or decreases, so too does their share of the public debt.

Figure 1 illustrates this dynamic. What is most remarkable is the massive increase in concentration of the public debt that has taken place since the onset of the crisis. From 38 percent in 2007, the top percentile’s share the public debt has climbed to a shocking and unprecedented 56 percent in 2013, the last year for which data are currently available.

quote:

Overall, I argue that the spectacular increases in the public debt since the early 1980s have served the interests of a bondholding class of dominant owners at the apex of the wealth and income hierarchy. How do we explain these massive increases in public debt? And how exactly do we explain the connection between growing inequality and rising public indebtedness? Answers to these questions can be found in Wolfgang Streeck’s concept of the “debt state.”

The Making of a Modern “Debt State”

In his book Buying Time: The Delayed Crisis of Democratic Capitalism (Verso), Streeck traces a shift in the advanced capitalist countries from a “tax state” to a “debt state.” Under the post-war tax state, gradual increases in government expenditures were matched by tax revenues, which resulted in falling levels of public indebtedness. With the emergence of the debt state from the 1970s onward, government expenditures have continued to grow while tax revenues have stagnated, resulting in escalating levels of public indebtedness.

The US is, in many ways, the ultimate manifestation of the debt state, where stagnating federal tax revenues have been the primary driver of increases in the public debt. Tax stagnation is itself the product of a successful tax revolt on the part of powerful elites. What this means is that tax revenues constitute a dwindling portion of national income, and also that the bondholding class is now paying less and less taxes as a percentage of its total income.

quote:
In essence, what the transition from the tax state to a debt state means is that the Federal Government chooses to borrow from the bondholding class rather than taxing it. And in deciding to furnish wealthy households and large corporations with risk-free assets instead of levying taxes on their incomes, the debt state reinforces the existing pattern of inequality. This raises further questions about the long-term stability of current arrangements. The debt state is likely to persist into the foreseeable future, and the reason has to do in large part with the role played by foreign ownership of the public debt.
A Powerful Foreign Bond

Since the early 1970s, there has been a rapid globalization of the US Treasury securities market. In the post-war period, official and private foreign investors consistently owned less than 5 percent of the US public debt. The foreign share has climbed steadily ever since and at the present time stands at roughly 50 percent.

This seemingly insatiable foreign appetite for US Treasury securities means cheaper credit for the US government, which deflects challenges to domestic owners of the public debt at the top of the wealth and income hierarchy. In the case of the Federal Government, cheap credit relieves pressures for socially disruptive spending cuts, as well as increased taxation, which would fall more heavily on elites. Access to cheap credit also dampens resentment toward those same elites by allowing low- and middle-income Americans to maintain consumption habits in the face of decades-long wage stagnation.

quote:
Consequences for Democracy
quote:

The linkages that Morgenthau Jr. draws between the public debt, power and democracy have obvious intuitive appeal. And Streeck’s concept of the debt state is once again helpful in exploring the consequences of growing inequities in ownership of the public debt. In Buying Time, Streeck argues that the emergence and consolidation of the debt state has had dire consequences for democratic representation in advanced capitalist countries. Specifically, he asserts that under the debt state governments have come to prioritize the interests of owners of the public debt, the Marktvolk, over the general citizenry, or Staatsvolk.

quote:

Concentrated ownership does not necessarily give owners of the public debt direct power over the political process. But it is clear that there has been a transformation in policy in recent years; one that provides an ideological climate that privileges the interests of the bondholding class. Inequality in ownership of the public debt and inequality in representation within government policy are really two sides of the same coin. In this sense, the debt state not only reinforces wealth and income inequality, but it also contributes to the broader erosion of democracy.

epaulo13 epaulo13's picture

..still from the above piece

quote:

What Should (and Should Not) Be Done

Inequality has come to permeate all facets of contemporary capitalism, and so its pervasiveness in the public finances should come as no surprise. What we need to consider is the possible political measures that might be implemented to counteract growing inequities in ownership of the public debt. But before discussing political solutions, a word of caution is in place.

The problem I highlight in the book is not a large public debt. As Abba Lerner first demonstrated in the 1940s, the outstanding level of public indebtedness is inconsequential so long as it is being accumulated as part of a macroeconomic strategy to achieve non-inflationary full employment. In fact, for a monetarily sovereign entity like the US Federal Government, which issues debt in a currency it fully controls, bankruptcy is never really an issue because the Federal Reserve can purchase government bonds when the private sector does not want them. The existence of a powerful bondholding class should provide no solace for “deficit hawks” eager to find evidence to support their fear mongering about the supposed unsustainability of the public debt.

The real problem, then, is a large unequally distributed public debt. This distinction is absolutely crucial. From an emancipatory point of view, the point is not to try to eliminate or even reduce the public debt, but to find ways to tackle the inequality that underpins the public finances. As mentioned earlier, the emergence and consolidation of the debt state was driven primarily by tax stagnation and declining tax progressivity. The debt state, in other words, has come into being because the Federal Government has come to rely on borrowing from the bondholding class instead of taxing it. Restoring progressivity to the federal tax system, by increasing tax rates on wealthy households and large corporations, would therefore go a long way in addressing the growing inequalities in ownership of the public debt and in the ownership of wealth and income more generally.

Rev Pesky

From the posted article by Sandy Brian Hager:

Quote:
The problem I highlight in the book is not a large public debt. As Abba Lerner first demonstrated in the 1940s, the outstanding level of public indebtedness is inconsequential so long as it is being accumulated as part of a macroeconomic strategy to achieve non-inflationary full employment. In fact, for a monetarily sovereign entity like the US Federal Government, which issues debt in a currency it fully controls, bankruptcy is never really an issue because the Federal Reserve can purchase government bonds when the private sector does not want them.

Ah yes, that old 'quantative easing' strategy. Sorry Sandy, but you'd  better go back to school for a few years.

I could write a long essay on the failings of this article, not least of which is that Hager doesn't specify what he means by 'the 1%'. Is it the 1% of income earners, or the 1% of wealth owners? Big difference between those two groups, and the source of endless confusion, that was very ably used to detour the 99% movement is the US.

The real question is, however, can quantative easing 'ease' anything? To a certain extent, yes, provided it's in a closed system. The government can print money, hand it out to the peasants, and everyone is happy. There's a huge increase in government indebtedness, but who cares? Yes, prices go up, but as long as the printing press is working, it doesn't matter.

But what happens when the money so generated is used to buy products from outside the country? Those people who accepted the 'quantative' dollars don't accept them as quantative dollars, they accept them as real dollars.

Now, as long as the owner of these quantative dollars can spend them as real dollars anywhere in the world, no problem. At some point, though, other countries may decide they don't want to accept those dollars as real money, and that's when the fun starts. The owner of the quantative dollars then have to decide what they're going to do with that money, and the very natural solution is to use them to purchase in their land of origin.

In the case of the USA and China, say, the government of China uses the quantative dollars to buy up real property in the USA. That is the only way they can protect the value of their quantative dollars.

So instead of borrowing the dollars and increasing the debt, the government gradually sells off assets within the state. Just think of a rancher who doesn't want to, or can't, borrow money from the bank, so instead borrows from friends and relatives, who then start chippping away at the property itself in order to protect their investment. 

For the time being it's not a problem. The assets of the USA are very large, so there's a lot of real estate to sell. But it's only a matter of time, and the more money 'printed', the sooner the collector will come to call.

And honestly, how can anyone write a whole article on government debt without once mentioning credit derivatives? Sorry, but that's inexcusable. And just for Hager's information, when you borrow money, you'll find it's a lot easier to borrow from the wealthy than the poor. 

Geoff

The government should stop borrowing from private banks and go back to borrowing from the Bank of Canada, as it did before 1975. It's no coincidence that government debt started to pile up after it started to borrow from the "banksters". Debt is not a consequence of over-spending; it's the result of doing business with CIBC and the like.

epaulo13 epaulo13's picture

..i agree geoff.

..the solution to the debt state as stated above is very pertinent to our times. it was just this passed election the debt debate began. the solution presented, i endorse and prefer it to what i understand of what the ndp proposed when mulcair announced a deficit payment priority. this is an important distinction. this represents a better solution in the now rather than believing that our rewards are just down the road if we can just pay off the debt.

The real problem, then, is a large unequally distributed public debt. This distinction is absolutely crucial. From an emancipatory point of view, the point is not to try to eliminate or even reduce the public debt, but to find ways to tackle the inequality that underpins the public finances. As mentioned earlier, the emergence and consolidation of the debt state was driven primarily by tax stagnation and declining tax progressivity. The debt state, in other words, has come into being because the Federal Government has come to rely on borrowing from the bondholding class instead of taxing it. Restoring progressivity to the federal tax system, by increasing tax rates on wealthy households and large corporations, would therefore go a long way in addressing the growing inequalities in ownership of the public debt and in the ownership of wealth and income more generally.

SeekingAPolitic...

http://www.urban.org/research/publication/financial-health-detroit-resid...

Here is a little slice of the american situation.  I am kinda stunned becasue if I reading this report correctly 35% of Americans are in debt collections.  There is a chart in figure 3.

here is how is defined.

Roughly one in 12 (8 percent) Detroit residents have debt that is between 60 and 180 days past due (table 2). This past due debt can result from unpaid credit cards, student loans, automobile loans, and other installment loans. Once this debt is more than 180 days past due, it enters collections. Collections debt can also result from unpaid bills such as medical bills, utility bills, parking tickets, and membership fees that are reported to the credit bureau. Two-thirds of Detroit residents (66 percent) have debt in collections, double that of the rest of the MSA. The median amount in collections in Detroit ($1,847) is over $400 more than the median in the rest of the MSA ($1,402, figure 3).

 its 1500 dollars but still 35 % cannot payoff a sum of 1500 things are super strecthed.  All these these individuals must be living pay cheque to pay cheque.

https://www.thestar.com/business/2016/09/07/half-of-working-canadians-li...

Canada is probably no better appearently 50% are living cheque to cheque in Canada.  If you lose your job good luck making a car or mortage payment.  And yet were ploughing are savings into overpriced homes.