Canadian Credit Bubble In Pictures | Hacker News Reader

Canadian Credit Bubble In Pictures

globaleconomicanalysis.blogspot.com

18 pointscwan10 comments

The per-capita numbers wouldn't be as dramatic. Canada's population grew by 10% between 99 and 09.

Also saying that "Canada is fiscally prudent" is true if we consider only the Public debt (which excludes household debt). France has the opposite problem, the state is a big spender and households are financially prudent. A country's finance doesn't necessarily reflect its citizens financial habits.

This is still a worrying picture for Canada...

I'd rather live in a country where the government is fiscally prudent, because then you still have choice to be personally prudent and put most chances on your side.

If you live somewhere where there's a massive public debt, whatever you do personally won't avoid you a world of hurt in the long-term.

(or at least, that's my understanding of the situation)

Wouldn't comparing the actual numbers with a line that represented both inflation and increases in disposable income be most fair?

In which case from my eyeballing:

a) Credit card debt has doubled

b) Personal lines of credit have tripled - but this could be related to an increased number of lines of credit available to people.

c) Mortgages look on pace

d) Household debt has increased about 50%

I know right? Seems like the data can stand on it's own without the embellishment. Omitting important data just makes me distrust the author.

For "c", I think it would be interesting to compare it against housing prices.

That is quite scary, but I'd like to see this as a per/capita comparison against america and maybe even europe.

We didn't have the 'sub-prime' credit program like the US did, or maybe we just don't realize that we in Canada have something similar, but maybe it just hasn't struck us yet.

In other news, the dollar was very close to hitting parity today:

http://ca.finance.yahoo.com/q/bc?s=USDCAD=X&t=1d

Also, a minor point, the heading for the last graph talks about the increase in credit from '99, but the legend shows '02, so I'd be hesitant comparing those numbers to the rest.

This shows an increase in household debt, not a bubble. http://en.wikipedia.org/wiki/Economic_bubble

Debt is a leading indicator of a temporary and artificial increase in spending and prices: people don't take out loans just because they want to sit on a pile of money, they take out loans because they want to buy goods and services. And when more money is chasing after the same goods and services, prices goes up (microecon 101).

If investors are making bad forecasts by assuming that such temporary upward trends in price will be sustained for a long time, or even permanent, then the result is a bubble economy.

A bubble exists because it is a self-fulfilling prophesy: when investors increase debt ("leverage") in order to invest in whatever good is currently rising in price (i.e. has already been bid up via debt-funded spending), those investors further increase the price and thus attract even more investors. This continues until a sufficient number of investors are cashing out in order to pay back the debt (whether due to the timeline of the loan or due to the lender calling them on their leverage position).

Investors who don't use leverage (i.e. use only their own money) are far less capable of creating large price moves: a leveraged investor can generate a trade volume two or three orders of magnitude larger than an unleveraged investor. Bubbles are much harder to sustain purely with unleveraged investments: to become a bubble, a price rise has to be sharp enough to attract attention, bringing in more investors to form the next layer of the pyramid.

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