The trickle down effect
It has been said that if we cut taxes for the rich and help profitable businesses make even more money then the economic benefits would trickle down from the top to the rest of us. But for many in the working class this has simply not been the case. 🙁
The top 1% have never been wealthier, but the rest of us still face many financial roadblocks. Both consumers and governments of all levels are still carrying a lot of debt. However real incomes in the U.S. have been slowly declining since 2008. Up here in Canada our debt-to-income ratio is near an all time high.
We often receive conflicting messages from policy makers. The Canadian Central Bank is keeping rates low to encourage consumers to spend and stimulate the economy. But at the same time it says that rising consumer debt is a major risk in this country. That’s right, patronize consumers for their debilitating debts when the Central Bank is responsible for creating the cheap money in the first place. Sound logic, Mr. Poloz. 😛
“Even a slight [increase] in the interest rate will push thousands into bankruptcy,” says Frank Bennett, a bankruptcy insolvency lawyer in Toronto. We’re already seeing “approximately 10,000 consumers going bankrupt a month in Canada,” Bennett says. “They’re paying exorbitant interest rates on credit cards and household debt. They’re using one credit card to pay another and they’re out of money by Friday night.”
Don’t panic, but be prepared
Random Useless Fact:
This is what happens when an American is asked to label a map of Canada
I’ve mentioned many times that our macro indicators fail to capture anything even resembling the whole picture. I suppose that’s the easy answer though; the tough part is moving forward with social policy that takes this into account
Policies always seem to lag behind advances in human technology and behavior. Maybe we should get computers to analyze these kinds of information. 🙂 The data is all there but it’s hard for people to comprehend the greater significance of the information.
Wow that is a scary statistic. So many people living pay check to pay check. Makes you quite nervous. But hey if 20% cant afford their mortgage if rates go up 2% it will be a huge buying opportunity in real estate markets.
Yes, if the government lets that happen I’m sure I’ll be one of the first to line up for distressed homes lol. If people sell their houses they will have to live somewhere. Prices go down but rents will go up. Great market for real estate investors 🙂
Those are pretty scary statistics. 20% couldn’t afford their mortgage? At the same time, is it possibly the consumers’ fault for stretching a bit and buying the largest/most expensive house they could, without any cushion in their finances?
That’s probably what happened. In order for a loan application to work there has to be a lender and a borrower, and both parties have to agree to the terms. Controlling one’s spending, including a home, is that person’s own responsibility. The financial system often encourages home buyers to stretch their affordability, but everyone has to be careful how they use their money. 🙂 There is also unintended consequence of leveraging to much debt, which is putting risk on tax payers. Thanks to the CMHC if borrowers start defaulting on their mortgages the Canadian government insurance agency is on the hook. 😐
The government teaches its citizen to encourage spending to boost economy and the school system fail teach our kids the importance of personal finance/saving (except on kindergarten when they teach about the grasshopper and the ant tale). I think its more on competition between nations on who has the better economy. By doing that they are putting their own people on debt and they will say “don’t worry we will take care of you when you are old, we will put you on a nursing home but for now work for us until you are 70 years old, just keep on working and keep on spending for now”
It’s interesting how each country’s definition of a “better economy” mostly just means higher GDP growth and inflation. I don’t see what wrong with having the cost of living stable. When there are so many people still unemployed or underemployed maybe it’s not the best time for central banks to try and grow the economy and introduce inflation.
Interesting statistic with the 20%. I need to try that stress test scenario. I don’t see there being any problem with me paying my debt but have been thinking about reducing the amount of items on my debt profile for the rest of 2014 and 2015.
I love that graphic, hell froze over ant the lake of maple syrup are the best part 😀
It sounds like you have your debt well under control Ms. Lynx 🙂 I wonder how Canadians would do if we tried to label a map of the U.S. 😕
I do know that the U.K.’s experience with tax cuts across all incomes boosted the incomes of the rich and the poor. Margaret Thatcher always took issue to the socialists complaint about the “rich getting richer” responding with, “Your telling me that you would rather have the poor poorer, so long as the rich weren’t so rich”.
You will find that the root cause of the complaint from most people complaining about the “rich are getting richer” is pure envy. One must focus on improving themselves and their situation, and not on your neighbors situation.
We are blessed in Canada right now. Our taxes have been going down for over a decade. The federal budget is balanced, and the middle class has never prospered as much as it is right now. It most certainly could be worse!
You’ve hit the nail on the head good sir 🙂 Instead of trying to pull the rich down, society should try to lift the poor up by empowering them with opportunity, education, and inspiration. The only kinds of sustained motivation and meaningful success one can experience have to come from within. If the path to a decent lifestyle is known and there is government support when needed then any able bodied person who still expects a handout is just being selfish. You seem to be quite familiar around British politics, JR. Not many people in my group of friends know who Thatcher was, lol. If we’re ever in the same neighborhood we shall enjoy some tea and biscuits together. 😀
Yay, great job Debs. Soon you will be enjoying retirement. I’m looking forward to possibly being debt free too. It won’t be any time soon but I’m making progress every month 🙂
I really can’t understand how so many people live pay cheque to pay cheque: is it because they can’t control their spending or are they really that desperate financially?
I think part of reason is those people don’t feel like there are sever consequences for not saving money, at least here in Canada. The official poverty rate in India is a sad 22% according India’s own government. Yet their average savings rate over there is 30%. 🙂 I think people tend to value savings more if they live in a place that lacks a social safety net.
Whatever happened to common sense, and personal responsibility? Knowing how much I have made yearly, and how I have been able to pay off my mortgage (twice as i bought a bigger house after the first one with one salary) – I don’t get it. I am also well on my way to having a nice amount put away in case I do make it to retirement age. I really get cynical when i read these types of sad sounding stats. The popularity of shows like “Property Brothers” really shows the mentality of some folk. Lets buy a $750,000.00 house renovate it for another $100,000.00 because it just not perfect… Please. Most people set themselves up for failure. Learn to live below your means – not above. Buy a smaller house, buy a used car, keep your electronics until they die, put a little money away for a rainy day, its really just that simple.
It doesn’t get any simpler than that 🙂 Yet so many people are still doing it wrong. I’d want to see a reality tv show where people practice responsible spending. But I guess that wouldn’t get any good ratings lol.