Insight: Borrowing spree pushes Canadians to edge of debt cliff

Tue Jan 31, 2012 10:52am EST
 
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By Andrea Hopkins

TORONTO (Reuters) - The two giant jars on Randolph Taylor's windowsill are filled with shards of credit cards, chopped up by the clients whose staggering indebtedness drove them to the front line of Canada's household debt crisis.

"I used to cut them up myself, but then I saw that having them do it themselves was a huge symbolic act," Taylor said, pulling out a pair of scissors from his desk drawer in the Toronto headquarters of debt counseling agency Credit Canada.

"I tell them this card is the reason they are here. This card is the reason they haven't been able to sleep."

The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers.

Bank of Canada Governor Mark Carney has warned that the ratio of debt to income will rise from the already alarming 153 percent record reached last year, and many think it will approach the landmark 160 percent hit by the United States before the U.S. tipped into crisis more than three years ago.

While Canada has spent the last few years boasting of its escape from the global credit crisis and its quick recovery from recession, both Carney and Finance Minister Jim Flaherty are sounding the alarm on household debt, warning it has become the biggest home-grown risk to the financial system.

"Obviously the biggest concern is taking extreme levels of debt for those who are most vulnerable," Carney said in mid-January, pointing to a "potentially overvalued" housing market that has roared higher for years, barely pausing when the U.S. market collapsed.

Carney, like central bankers the world over, has dropped official interest rates to historic lows to bolster growth, and suggested borrowing costs will remain low. The fact that his own policy made borrowing so attractive has not lessened his warning that sharp pain may come when rates do rise.   Continued...

 
<p>Credit Canada counsellor Randolph Taylor poses with jars of cut-up client credit cards at his office in Toronto January 30, 2012. The two jars are filled with shards of credit cards, chopped up by the clients whose staggering indebtedness drove them to the front line of Canada's household debt crisis. The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers. Picture taken January 30, 2012. REUTERS/Mike Cassese</p>