Consolidating – from size of the Canadian economy point of view, we can say that there is rise in household debt which is held by Canadians is rising day by day. Even though this is not in absolute terms from this point of view, it is true and accepted.
Debt is of course indispensable when we think in terms of modern way of life. This is growing preoccupation especially for Bank of Canada. High debts are considered more vulnerable when we think of negative events. Along with the individuals, this will even apply for the entire economy of Canada, more at this consolidating site.
Elevated indebtedness has also raised vulnerability in Canada’s financial system. This is the most important thing which needs to be considered in future. There must be serious analysis on the management of high risk economic recessions by Bank which is caused by both high unemployment and increasing debts.
The vulnerability of the Canadian economy is also a risk factor which must be handled by Banks. Rising interest rates should be taken care. High household debts can lead all such issues. These days economy is more sensitive to higher interests rates than earlier. So, one must keep this in mind. Along with all these points, one must also understand that there is rise in global interests as well as domestic interests as well.
Cause for households debts:
Two trillion dollars cannot be treated as a small and it is definitely a big number. Household debt is decided by comparing the debt with disposable income amount of the people. In Canada, the household debt is almost 170 percent of the disposable income.
This is the reason behind the owe $1.70 for each and every Canadian per dollar per year income. But one must also understand that economies like Sweden, Australia, and even Norway are experiencing higher household debts compared to this which are relative to the disposable income.
One must observe the common factors here. In all the countries mentioned above the household debts have increased slowly and steadily over the decades. They all own well developed mortgage markets and high rates and deep homeownership. Of course, owning a house is part of many culture and Canada as well. This is the way they build future because when we compare income with house price, house prices are growing unexpectedly.
Burden of debt:
One must service the debt by comparing it to the income. It is always better to have lower interest rates. This will help the people to carry more debts which can be affordable. So, analyzing the debt service ratio becomes very important. This is a ration between the payments of principal expressed as the percentage of income and interest required according to this consolidating site.
One must observe that aggregate debt service ratio of mortgages for Canadian households are significantly stable from many years. So, they have always utilized the advantages of lower interest rates. This is the reason which helped in maintaining a very stable debt service ratio.
It is understood that there is very less need of monetary stimulus for the Canadian economy. But it becomes very important to consider and analyze the risks which must be faced related to the forecast along with the other risks which are related to the household debts.
If there is a sudden and high rise in rates, then there is a risk that growth will get chocked. This may also lead to sudden fall of inflation rates. There is a chance that they may face inflation pressure as well if in case economy moves much slower.