Juggling Dynamite

It is by now widely reported that Canadian household debt levels are perilously high at a record 163.4% in the second quarter. Less acknowledged however, is that total government debt has actually been growing at a higher rate than households since 2008 . A new report from BMO Capital Markets points out that rather than just chastising Canadian consumers for living beyond their means, the various levels of Canadian government should also be focusing on surging debt levels since the last recession. This trend is only likely to worsen over the next few quarters, as Canadian tax revenues weaken amid the incoming economic downturn. See: Canadian government debt has risen much faster than household debt since 2008

This week on Here’s the Thing, Alec talks about the financial crisis with Joseph Stiglitz, a Nobel Prize-winning economist. Stiglitz shows no restraint when unleashing criticism of presidential policies — on both sides. Of President Barack Obama’s financial-industry rescue plan, Stiglitz said that whomever designed it was “either in the pocket of the banks or … incompetent.” Stiglitz talks to Alec about growing up in Gary, Indiana and how that impacted his decision to become an economist.

A couple of key themes individuals should be aware of today:

• First, the financial advice business continues to be thick as bricks in their stubborn insistence on putting their own profit and sales targets ahead of the best interests of their clients.  As financial services firms continue to lose revenue and move through a well-deserved secular downsizing phase, which will continue to prompt thousands of lay offs in the sector over the next couple of years, maybe it is time to admit they have a flawed business model that gouges their clients and adds no value?  Maybe time to try a new approach?  Their response:  “Hell no” as they continue to fight meaningful reform with intensified government lobbying.  See:  The financial industries long path to putting the clients first

• Second, baby boomers (especially in Canada) who are under-saved for retirement have been doubling down on debt to own high-end homes in the hopes they will be able to sell in the next few years and cash out profits for retirement.  There is a big problem with this exit plan: the young folks behind the boomers are broke, carrying record student debts and under-employed.  42% of 20 somethings are still living with their parents. Few will be able to buy expensive housing off boomers over the next few years:

“Mortgage broker Steve Garganis sees more and more baby boomers adopting what he calls “the 10-year plan.” It consists of buying up — not down — into the most expensive house they can afford in their 50s, even if the kids are gone, with the notion of cashing out as they ready for retirement.  See:  Boomers gambling home values will save them

Meanwhile Toronto’s epically overbuilt condo market seems to be finally feeling the weight of declining demand and excess inventory. See: Toronto condo projects on hold as sales plunge