Sitting on a Debt Time Bomb...

Canadian households have put themselves seven per cent deeper into debt than a year ago and are acutely vulnerable to any economic turmoil, a CIBC World Markets report warned Thursday.

An apocalyptic credit-market collapse is unlikely but "a complacent approach toward the rapid pace at which Canadians borrow is similarly misleading and dangerous," according to the study by economist Benjamin Tal.

Debt is increasing faster than the economy's fundamentals can support, he wrote in a study titled Are We Sitting on a Debt Time Bomb?

"I'm talking about people who borrow to support a lifestyle they cannot otherwise afford," Tal said in an interview.

"The sensitivity of households to higher interest rates and to other economic shocks suggests that the next recession will be more severe because of that."

His report says Canadian households owe 20 per cent more than at the start of the decade while average disposable incomes have risen at an annual rate of less than two per cent after inflation, amid an "almost chronic inability of the Canadian economy to generate high-paying jobs."
Gary Norris