Monday, April 30, 2012

Canada's Mortgage Stress Test - How Nervous Are Canadians?

Over the past few months, I have posted several items on Canada's overheated housing markets and stratospheric levels of household debt.  While those with common sense realize that eventually interest rates will go up and housing values will drop, one has to wonder just how confident Canadian homeowners are about their ability to sustain their monthly payments in the face of rising mortgage rates.  Fortunately, Canada's Bank of Montreal (BMO) recently surveyed 1500 Canadian homeowners asking that very question in their Homeownership Stress-Test Report.

First, let's look at how low five year fixed mortgage rates in Canada really are today when compared to historical values back two generations to 1951 in this chart from the Bank of Canada website:

Here is the same data in graph form from 1975 to the present showing that we really are living in an interest rate dreamworld:

According to the BMO survey, the majority (57 percent) of Canadian households are quite confident that they would be able to service their mortgages if interest rates rose by two percentage points.  That said, 20 percent of Canadian households indicated that the same two percentage point rise in mortgage rates would hamper their ability to afford their home.  The final 23 percent of the surveyed households indicated that they were uncertain whether a two percentage point rise in interest rates would impact their ability to afford their homes.

The question of affordability under a rising interest rate scenario also seemed to be different along gender lines.  Only 37 percent of men claimed that they would be unable to afford their homes in a rising interest rate scenario whereas nearly half of women (49 percent) stated that they would have trouble affording their mortgage payments under the same interest rate scenario.

Homeowners’ perception of mortgage stress also varied with location in Canada as shown on this chart:

Albertans were most certain that they could afford their homes if interest rates went up 2 percentage points at 73 percent and were least concerned about losing their home at only 13 percent.  British Columbia residents were least certain that they could afford their homes with only 48 percent being certain that they could afford a two percentage point rise in rates and a rather frightening 32 percent being certain that they could not.  That is a particularly frightening statistic given that Vancouver has, by a wide margin, the least affordable real estate in Canada when median price is measured in terms of median household income.

Here is a graph showing what has happened to average real estate prices across several major markets in Canada over the past 11 years:

It is quite apparent that prices have risen well beyond what is comfortable for most households, especially given that total household income has risen only modestly.  According to Statistics Canada, median total household income across Canada rose from $60,600 in 2005 to $68,410 in 2009, an increase of 12.9 percent over the five year period.  Over the same time frame, an average house in Canada rose from $230,000 to a peak of $320,000, an increase of 39 percent as shown on this graph from CREAstats:

Clearly, prices for residential property have outstripped growth in household income, resulting in decreasing affordability, particularly in certain markets.  Canada's real estate market could be in dire straits if the 20 percent of Canadians that cannot afford a measly two percentage point increase in mortgage rates are forced to sell their homes, flooding the country's least affordable markets with a surplus of for sale real estate.  Having seen Calgary's market flooded with unaffordable homes in the early 1980s, it was rather stunning to see how quickly prices dropped by one-third or more.  This time, it could be far worse and far more painful as Canadian "homeowners" find themselves owning more mortgage than they do property.

Thursday, April 26, 2012

A Country-by-Country Look at Europe's Debt Problems

As we all have noticed, the European debt crisis is still ongoing despite the occasional headline that suggests that the worst of the problems are behind us/them.  As my regular readers know, in researching for this blog, I always try to reference the best sources available.  That means that I almost never quote from the mainstream media since their coverage is often rife with inaccuracies, rather, I prefer to source my postings from government databases or well-researched think-tank material where possible.

To that end and staying on the theme of the Eurozone debt problems, I have always found it difficult to ascertain the veracity of debt data, particularly debt- and deficit-to-GDP ratios as published in daily newspapers.  Fortunately, the European Community, through its Eurostat website, has released a summary of the fiscal situation of all 27 European nations including both those that use the euro as their currency (the EA17) and those that both do and don't use the euro (the EU27).  In this posting, I will summarize the data on both graphs and charts from this data release.

Here is the annual GDP, debt and deficit information for all European nations current to the end of 2011 in alphabetical order:

Please note that, for your convenience, I have converted all of the non-euro statistics to euros.  Should you refer back to the original source material, you will find that it uses the national currencies for the non-euro nations.

Remember that, according to the original mandate of the European Community, nations were supposed to ensure that their deficit-to-GDP ratio did not surpass 3 percent and that their debt-to-GDP ratio did not surpass the 60 percent level.  You can quite quickly see that there are more debt and deficit transgressors than nations who have stayed within the bounds of the original agreement.

Let's start by putting the countries in order from the smallest economy to the largest:

You can see that there is quite a range in economic size with the smallest economy (Malta) being less than one four-hundredth the size of the largest (Germany).  Out of the EU27 nations, there are 10 that have economies that are less than €100,000 million euros in size representing 37 percent of all Member States.  Four economies alone, Germany, the United Kingdom, France and Italy, account for 58.8 percent of the entire output of the European Union.

Now, here's a graph showing the total debt for all EU27 nations in order from smallest debt to largest:

From the graph, you can quite readily see that four nations are responsible for the lion's share of Europe's debt.  The largest debt is, of course, held by Germany, the EU's largest economy.  Germany had a total debt of €2.088 trillion euros ($2.714 trillion) at the end of 2011, the world's third largest nominal sovereign debt after the economic powerhouses of the United States and Japan.  In second place (within Europe) is Italy at €1.897 trillion followed by France at €1.717 trillion and the United Kingdom at €1.577 trillion.  Between these four nations, they are responsible for €7.279 trillion in sovereign debt or 69 percent of the EU27 total and their average debt-to-GDP ratio is 93.2 percent, well above the average of 82.5 percent for all EU27 members.  This indicates that the four major economies in the European Union are responsible for a disproportionate share of Europe's overall debt burden and, unfortunately, in the case of Italy, their economy is less able to grow itself back to stability.

Here is a graph showing the deficit-to-GDP ratio for all nations in order from the smallest to the largest ratio:

Only 10 out of the 27 nations or 37 percent of the total are within the current 3 percent deficit-to-GDP limit and only 2 have budgets that were in a surplus situation in 2011.  These nations are mainly the smaller economies of the EU27 including many former Iron Curtain countries and those in Scandinavia.

Here is a graph showing the debt-to-GDP ratio for all nations in order from the smallest to the largest ratio:

Again, only 13 out of the 27 nations or 48 percent of the total were within the current 60 percent debt-to-GDP limit at the end of 2011.  As well, the less indebted nations as a percentage of GDP are those former Iron Curtain nations and those in Scandinavia. 

From this brief look at the fiscal data for Europe, it becomes quickly apparent that the debt problem is not going to solve itself anytime soon.  Most nations, including Europe's powerhouse nation of Germany, have experienced rapidly growing debt levels over the past four years with Germany's debt rising by 21 percent from €1.649 trillion to €2.088 trillion with only 3.9 percent economic growth over the same timeframe.  It is quite obvious that Europe's debt and deficit scenario is not sustainable, particularly as it appears that Europe's economy is flitting in and out of recession this year.  With the world's economy so interconnected, trouble in Europe will soon find its way around the world, causing grief for the United States economy in particular.

Eurozone Debt Summary

The European Commission's Communication Department, Europa, recently released its debt and deficit data for all of 2011.  In this posting, I'll hit a few of the high points showing how this turbulent year in the Europe has impacted government debt levels.

First, it's important to note that, as part of its original mandate, countries in the Eurozone set up debt and deficit targets and a mechanism that dealt with nations that exceeded these targets back in 1999 when the euro was created.  Almost laughably small in today's terms, here are the two criteria by which Member States were forced to abide under threat of sanction:

1.) The budget deficit must not exceed 3 percent of gross domestic product.
2.) Public debt must not exceed 60 percent of gross domestic product.

If Member States exceeded these guidelines, the European Commission wielded a wet spaghetti noodle of threatening actions termed the Excessive deficit procedure or EDP.  Here is a list of ongoing excessive deficits that are being reviewed, the date of the EC report and the deadline for correction in the last column:

Notice how the gap between the initial finding of excessive deficits and the deadline for corrective action can be several years.

For your illumination, here are the procedures that the European Community has taken against Greece since 2009:

Now, back to the latest annual EC debt and deficit data.  For your information, the term EA17 stands for the 17 nations that currently use the euro as their currency and the term EU27 includes those nations plus all other nations in the European Community that do not use the euro (i.e. the United Kingdom among others).

In 2011, the level of government deficit-to-GDP ratio in the EA17 decreased on a year-over-year basis from 6.2 percent in 2010 to 4.1 percent in 2011.  In the EU27, the deficit-to-GDP ratio decreased on a year-over-year basis from 6.5 percent in 2010 to 4.5 percent in 2011.  Note that both levels are still well above the deficit limit of 3 percent as noted above.

In 2011, the level of government debt-to-GDP was not as co-operative.  In the EA17, government debt-to-GDP rose from 85.3 percent at the end of 2010 to 87.2 percent at the end of 2011 and in the EU27, government debt-to-GDP rose from 80 percent at the end of 2010 to 82.5 percent at the end of 2011.

The raw numbers are also interesting.  Total government deficit in the EA17 fell from €571,050 million to €387,617 million, a drop of €184,433 million or 32 percent.  Nonetheless, total government debt in the EA17 rose to a new record of €8,215,289 million ($10.679 trillion), up 4.8 percent from the previous year.  Total government deficit in the EU27 fell 30 percent on a year-over-year basis €565,117 million.  Total government debt in the EU27 rose by 6.2 percent to €10,421,987 million ($13.55 trillion).  This represents roughly one-third of the world's entire stock of public debt according to the Economist's global debt clock.

Here is a chart summarizing the growth in debt and changes in deficits since 2008:

It is interesting to look through the details of the report and find that even Germany, the pillar of fiscal prudence, has a debt-to-GDP ratio of 81.2 percent, well in excess of the 60 percent target.  The worst debt offender is Greece with a debt-to-GDP ratio of 165.3 percent at the end of 2011.  Out of the 27 EU27 nations, only 13 are under the 60 percent debt-to-GDP target and these consist mainly of the former Iron Curtain countries and Scandinavia.  Surprisingly, in light of the Greek debacle, Ireland is the worst offender on the spending side, ringing in a massive 2011 deficit of 13.1 percent of GDP.  Only 10 of the 27 EU nations have a deficit-to-GDP ratio that is below the 3 percent target, again, mainly the former Iron Curtain countries and Scandinavia.  This does not particularly bode well for the future since many of these nations had deficit spending that exceeded guidelines during and after the Great Recession of 2008 - 2009.  As well, if the impact of low debt-to-GDP ratios of the smaller economies of the former Iron Curtain countries were subtracted from the average debt and deficit-to-GDP numbers, the situation would look far, far worse. 

After reading and hearing so much about the Eurozone debt crisis over the past 18 months, it is interesting to see it all put into context.  What is concerning is that, while the growth in deficit spending seems to be improving marginally, the level of indebtedness marches ever higher.  Fortunately for most governments (the PIIGS nations excluded), interest rates on sovereign debt remain at generational lows.   Should interest rates begin their march back to normal levels, it will be almost impossible for even the most prudent of nations (i.e. Germany), to keep their spending levels from growing faster than their revenues.

Tuesday, April 24, 2012

U.S. Housing Permits - A Historical Viewpoint

Updated June 26, 2012

Over the past weeks and months, we've been subjected to conflicting data regarding the state of the housing market in the United States with some data releases showing an improvement in housing and other data showing that we are not at the bottom.  The folks at the St. Louis Federal Reserve have some interesting data that gives us some perspective on how the housing market looks compared to its past history as measured by the number of authorized new private housing units building permits or PERMIT in FRED lingo.

Here is a graph showing the number of building permits (in thousands) over the past three years:

Since the depths of the Great Recession, building permits have risen from their nadir of 513,000 units annually in the month of March of 2009 to their current annual level of 780,000 units in the month of May 2012, an improvement of 52 percent.  That appears to be an incredible turnaround, suggesting that the housing market is really starting to take off.  In the last year alone, housing starts have risen by 156,000 units or 25 percent.  If that isn't a recovery, I don't know what is.

But, wait a minute.  Let's look back a bit further in time to see how the current monthly new housing permit data looks compared to what it looked like over the past decade:

That looks a bit different, doesn't it?  The annual rate of new private housing unit permits actually peaked at 2.263 million in September of 2005 and sat at the over two million mark for most of 2004 and 2005.  It wasn't until mid-2006 when new permits began to fall, dropping from 2.212 million in January 2006 to 1.638 million by December 2006, a drop of 25.9 percent over the year.  If we take the peak value of 2.263 million permits and compare it to the current, relatively good looking value of 780,000 permits, the drop is a rather stunning 65.5 percent.  Over the decade from March 2002 to March 2012 alone, the drop from 1.691 million permits to the current level is a slightly less impressive 53.9 percent.

Now, let's look at all of the data that FRED has for PERMIT going back two generations to January 1960 when most baby boomers were still wearing either diapers or short pants:

Over the past 52 years, all but seven of the lowest monthly permit numbers (between 513,000 and 747,000) are from the years between 2009 and 2012.  To put all of the data into perspective, the March 2012 permitting number of 747,000 is the 48th lowest out of the 626 data points in the FRED database.  As well, our frame of reference, the March 2009 data point, is the lowest number of permits over the past 52 years.  The other seven lowest months were from 1966, 1975 and 1981, years when the population of the United States was a fraction of what it is today as shown on this chart:

When the population data and the annual housing permit data is combined, we can quite quickly see that the current per capita permit data is actually very weak.  If we take the per capita permitting number for December 1960 and compare it to the per capita permitting number for March 2012, the March 2012 permitting level is only 41 percent of the 1960 level.  Obviously, that is a very major decline. 

When we're digesting how well America's housing market is doing from the weekly and monthly housing data releases which are generally viewed on a year-over-year basis, I think that this data shows us that we have to compare recent data releases with a view to a much longer-term horizon.  While the mainstream media may be insinuating that the next housing market boom is just around the corner, historical data tells us that we are still mired in the after-effects of the Wall Street-manufactured Great Recession and that by the time the next recession rolls around, single family home permitting and building levels are not likely to be back to historical norms.  We still have a very long way to retrace our path back to housing market normalcy.

Monday, April 23, 2012

SNAP and the State of the American Economy

Over the past few months, we have been getting conflicting economic data about the real "state of the Union".  One week, employment data looks to be improving and then next it appears to look like things are getting worse.  Housing data looks better one month and looks worse the next.  One statistic that is not widely reported is the data on the Supplemental Nutritional Assistance Program (SNAP), better known to most of us as food stamps.  Recently, the Congressional Budget Office (CBO) published its fiscal 2011 review of SNAP, data that provides us with a very succinct view of the American economy and where the CBO thinks it is headed.

The Supplemental Nutritional Assistance Program provides benefits for low income families to help them with their food purchases.  Households must meet certain eligibility standards to qualify for assistance; they cannot have more than $2000 in countable financial resources (i.e. bank accounts and other cash-type investments) or $3250 if one person is aged 60 or more or is disabled.  Homes and lots are not included as part of a households assets nor are pension plan payments.  

Here is a chart showing SNAP income qualification levels based on household size:

Deductions from total household income are allowed; these include a standard 20 percent deduction from earned income, a dependent care deduction, medical care expenses, child support payments and, in some states, a set amount of $143 is allowed for shelter costs for homeless Americans.

Here is a chart showing the maximum monthly SNAP allotment based on household size and and explanation showing how benefits are calculated:

Able-bodied adults between the ages of 16 and 60 must register for work, accept work and take part in employment and training programs when referred.  Failure to do so may result in disqualification from SNAP.

Despite the fact that the American economy is into its third year of a so-called "recovery", it's interesting to note that SNAP had a record-breaking year (and not in a good way) as shown on these graphs:

In fiscal 2011, the federal government spent a total of $78 billion on SNAP.  Participation in the program as a measure of total number of participants and the share of the U.S. population reached a record high with 45 million participants or one in seven Americans receiving SNAP benefits.   The number of beneficiaries rose by 50 percent in the five years between fiscal 2001 and 2005 and even faster in the five years between fiscal 2007 and 2011 when it rose by 70 percent.  About 65 percent of the growth in SNAP spending in the last five fiscal years was due to weakness in the economy as the Great Recession took hold. An additional 20 percent of the spending growth was due to the imposition of temporarily higher benefit amounts enacted as part of the American Recovery and Reinvestment Act.  The remaining 20 percent of spending growth was due to higher food prices and lower income among beneficiaries which also acts to boost the supplement as shown in the chart above.

The average American household that receives SNAP benefits consists of 2.2 people with about half of all households consisting of a single person.  Three quarters of all households receiving benefits included a child, a person over the age of 60 or a disabled person.  Most people receiving SNAP benefits live in households with very low income; in fiscal 2010, 85 percent of households receiving benefits had income below the national poverty guideline of $18,500 for a household consisting of three persons.  The average household income for beneficiaries in 2010 was $8800 per year or $731 per month with SNAP benefits averaging $287 per month or $4.30 per day as shown on this chart:

The number of SNAP beneficiaries varies with economic conditions.  As the U.S. economy heads into a recessional downturn, the number of SNAP recipients rises in tandem with rising unemployment rates.  As the economy improves, the number of beneficiaries gradually decreases but it can take several years for the number of beneficiaries to drop to pre-recession rates as shown on this graph:

Note that after the recession in the early 1990s, the number of SNAP participants rose for a full three years after the end of the official recession.  As well, the number of SNAP participants continued to climb after the end of the recession in 2001, reaching a peak in 2006, a lag time of nearly five years after the official end of the recession.  You will also note that the number of SNAP participants after the 2001 recession remained at an elevated level right up to the beginning of the Great Recession meaning that the program entered the 2008 recession with a higher number of participants than normal.

Here is a graph from the report showing past and future SNAP spending projections:

Spending on SNAP benefits rose by 140 percent in both nominal and inflation-corrected dollars between 2007 and 2011 from $30 billion to $72 billion with most of the growth related to an increase in the number of participants as I noted above.  Over that five year period, the number of participants grew by 70 percent while the spending on benefits grew by an even greater 135 percent.  As you can see on the graph above, spending on SNAP is projected to fall very slowly by the end of fiscal 2014, however, the number of people receiving benefits will still be high compared to historical numbers because of growth in the U.S. population.  Total federal spending on SNAP will peak at $82 billion in fiscal 2013 and will gradually fall thereafter.  Even with long-term improvements in the economy and no intervening recessions (an extremely unlikely scenario), the CBO projects that 34 million people or one in ten Americans will still be enrolled in SNAP in 2022, the same share of the population that was enrolled in 2008.

In my humble opinion, the statistics from this report are both illuminating and more than a bit frightening.  SNAP statistics from 2011 show that the so-called end of the last recession has not been experienced by one in seven Americans.  The official end of the Great Recession according to the Federal Reserve was June 2009; we are now 3 years into the "recovery" and the number of SNAP recipients and federal government expenditures on the program are not expected to fall until fiscal 2014 which starts in 18 months and even then, the drop in spending on SNAP is minimal.  That means that once again, the lag time between the end of the recession and the beginning of the drop in expenditures will be a rather lengthy five plus years.  By that time, if history is an indication of what the future holds, we could well be into the next recession meaning that we will starting from a much higher base level than was evident during past recessions just as I noted for the recovery after the 2001 recession.  Since the CBO does not appear to include another recession in their expenditure projections, this means that future federal expenditures on SNAP will likely be far higher than projected; just as Washington is looking in desperation for the ever-elusive concept of fiscal balance, record numbers of Americans will likely require a hand up.

Thursday, April 19, 2012

Austerity and Anarchy: Is There A Relationship?

Updated February 2013

Recent news coverage from Europe has shown us just how unpopular government austerity measures are among the "sweaty masses".  People tend to express anger when the ruling class imposes cuts on entitlements, particularly when those cuts have been necessitated by economic mismanagement by the very people that are imposing austerity.  A Discussion Paper entitled "Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919 - 2009" by Jacopo Ponticelli and Hans-Joachim Voth provides an interesting look at the historical relationship between social instability and violence as it relates to government austerity.  This interesting paper could well provide us with a look at how North American societies could deal with painful cuts in government spending.

The authors open by noting that social unrest has been a key issue in history, particularly since the French Revolution.  Social unrest is a powerful mechanism for political change; one need look no further than the Arab Spring to see how powerful the public is when acting in concert against government.

The authors focus on a European database from 1919 to 2009 as the continent underwent changes from high levels of instability and low levels of prosperity in the first half, changing to become a very stable and prosperous society in the second half.  Social unrest includes rioting, demonstrations, assassinations, government crises and attempted revolutions.  The data is then compiled into an index that summarizes all aspects of social unrest which the authors term CHAOS and then compared to cuts in government spending in an attempt to answer the question - for every percentage cut in government spending, how much social instability should we expect?

Here is a graph showing the CHAOS or number of social unrest incidents over each year of the study:

In light of the current debt problems faced by Italy, it is interesting to note that in the 90 year sample, Italy had the highest number of incidents at 38 in 1947 alone including 7 general strikes, 19 riots and 9 anti-government demonstrations.  The period between the two World Wars showed relatively high levels of unrest and the period immediately after World War II and between the years of 1968 and 1994 showed unusually high levels of unrest with several years showing 30 or more events in a single year.

Here is a chart showing the causes of unrest in the period between 1980 and 1995, how many events there were related to each cause and the average number of protestors per event along with the numbers arrested:

In the 15 year sample, there were relatively few protests related to the imposition of austerity measures, however, these protests tended to be far larger by an order of magnitude when compared to protests related to other causes.

The data shows a very clear correlation between the size of austerity measures taken as a percentage of GDP and the degree of social unrest.  CHAOS, or the sum of all actions of social unrest in each country in a given year, tends to rise as budget cuts rise as shown in this graph:

As I noted above, please remember that this is real data taken from 90 years of European history.  When government expenditures are increasing (white bars), CHAOS registers less than 1.5 events per year.  When government expenditures are reduced by 2 percent of GDP, CHAOS rises to 2.4 events per year and, when government expenditures are reduced by 5 percent or more, CHAOS rises to more than three events per year per country.

On the graph, you can also see a rise in each component of CHAOS as governments enact more stringent austerity measures; the frequency of strikes, assassinations, riots and demonstrations increases as governments cut spending as a percentage of GDP.

The authors conclude that governments may be reluctant to impose austerity measures on their electorate until it is too late because of governments fear societal instability and unrest.  Cutting expenditures significantly increases the frequency of anti-government demonstrations, general strikes and attempts to overthrow the existing government order.  Another study has also shown that more heavily indebted nations tend to have higher levels of social unrest, a factor that is most certainly working against Greece and will not likely work in the favour of Italy should history repeat itself.

Tuesday, April 17, 2012

Canadian Consumer Debt - Too Much of A Good Thing?

Thanks to a link provided by a reader, the subject of this posting will be the debt level of Canadians with statistical data provided by Statistics Canada.  The National Balance Sheet - Credit Market Summary provides all debt data for individuals, businesses and corporations and governments and is a veritable gold mine of data that shows changes in the level of debt that is being accrued by Canadians and Canada.  This facet of the Canadian lifestyle has been in the news a great deal lately, particularly as both Minister of Finance Jim Flaherty and the Governor of the Bank of Canada Mark Carney grow increasingly apoplectic about the debt level of Canadians.

For the purposes of this study, I'll be looking at the consumer credit, loans and mortgage data for the three decade period of time from 1981 to 2011 with an emphasis on the last two decades.  To put all of these numbers into perspective on a per capita basis, here is a graph showing Canada's population growth since 1960:

In 1960, Canada's population was 17.9 million.  In 2011, this rose to 34.28 million, an increase of 91.5 percent over 50 years.

Here is a bar graph showing Canada's population for the last 10 full years:

In 2001, Canada had 30.77 million people, rising to 34.28 million in 2011 for an overall increase of 11.4 percent.  As you will note later, the increase in Canada's population is nearly an order of magnitude smaller than the growth rate of its personal debt levels, indicating quite clearly that per capita debt is rising and that it has risen at a more rapid rate in the first decade of the new millennium than it did in the previous decade.

Now, let's look at Canadian consumers and their debt levels.  First, here is a graph showing the growth in consumer credit:

Notice how consumer credit rose more quickly after the beginning of the new millennium?  Between 1991 and 2001, consumer credit rose from $99.17 billion to $187.13 billion, an increase of 88.7 percent over the decade.  Between 2001 and 2011, consumer debt rose from $187.13 billion to $452.42 billion, an increase of 141.8 percent, a rather dramatic increase in the growth rate.  Consumer credit rose even during the Great Recession, increasing from $345.995 billion at the end of 2007 to $413.055 billion at the end of 2009, an increase of 19.4 percent in two short, very turbulent years.  Hey, it's almost as though the Great Recession never happened in Canada!

Next, here is a graph showing the growth in mortgages:

Mortgage growth is the other "big ticket item" when it comes to consumer debt.  Please observe how steeply the curve rises in the last decade and how the increase in the growth of mortgage debt even in the last year has not subsided despite numerous warnings from the powers that be.  Between 1991 and 2001, mortgage debt rose from $291.11 billion to $465.79 billion, an increase of 60 percent.  Between 2001 and 2011, mortgage debt rose from $465.79 billion to $1.02716 trillion, an increase of 120.5 percent, a rate of mortgage debt growth that is twice that seen just a decade earlier.  I guess all of those million dollar mortgages in Vancouver and overpriced homes in Toronto have had an impact on Canadians' debt levels.

Next, here is a graph showing the growth in consumer loans:

Finally, here is a graph showing the growth in total personal and unincorporated business debt (i.e. the sum of all aforementioned debts):

Notice once again that the slope of the graph increases after 2001 indicating an increase in the rate of debt accrual by consumers.  Between 1991 and 2001, total personal debt rose from $435.65 billion to $748.006 billion, an increase of 71.7 percent.  Between 2001 and 2011, total personal debt rose from $748.006 billion to $1.5928 trillion, an increase of 113.2 percent reflecting more rapid growth in debt levels in the last decade.  It's also interesting to note that mortgage debt is by far the largest portion of total consumer debt, ringing in at 64 percent of all debt.

Canadians, like the rest of the developed world, are currently experiencing nearly the lowest interest rates in generations as shown here:

We really are living in a dream world (or a nightmare) where Canada's central banker is providing what appears to be an endless source of cheap credit to Canadian credit junkies and then telling us that too much of a credit high is a bad habit that will lead to no good.

With the growth in per capita debt levels rising faster in the latest decade than in the decades before, a sudden rise in interest rates even by a couple of percentage points could make it very, very difficult for Canadian families to service their debts.  A housing market price correction of as little as 15 to 20 percent could create a wave of foreclosures as indebted households would find themselves unable to  meet their monthly mortgage obligations.  We could quite easily experience a repeat of what happened in the United States when the personal debt bomb exploded in 2008 as the Great Recession entrenched itself in the American psyche.  Always remember; what goes up must eventually come down.  Some of Canada's largest and most unaffordable housing markets may provide painful proof of that adage in the months and years ahead.