Mar 15, 2010 edmontonhousingbust.com

Just a quick post for Monday. Statcan released their Q4 2009 National balance sheet accounts data… included in that is a measure that should get more attention then it does, the national debt-to-disposable income ratio.

As we can see it’s been increasing over the last two decades, and that only seems to be accelerating of late. Through Q4 last year it was up to 146.2%. For some international context, in the U.S. and U.K. they respectively topped around 160% in Q1 2008, but since then have both been trending down (back into the 150’s now). Obviously in contrast to our situation here where the growth hasn’t even slowed, much less reversed.

The U.S. and U.K. comparisons are also relevant as they have had housing bubbles of their own, though theirs topped out in 2006 and 2007 respectively, whereas, here in Canada ours is yet to crest. So we know from their situations that the Debt-to-Disposable Income doesn’t typically top out for at least a year after the housing market peaks… so it will be interesting to see how high we get before it finally turns, and whether we will surpass either of those nations.

These stats are particularly troubling going forward in light of the runaway government spending around the world. That spending will have to be financed through the sale of bonds, and when the bond market gets flooded it will force up yields, which will drive up debt servicing costs for consumers… and after years of largely stagnant income growth coupled with massive consumer debt accumulation, adding increasing interest rates to the mix will have disastrous consequences.