Debt is a problem; is it the solution, too?

Ten years after a “global credit crisis,” personal household debt continues to rise even as central banks devise a way to unlock interest rates from a decade’s worth of historic lows.

It’s hard to provide a disapproving “tsk, tsk, tsk” however, considering the economy as organized is based on consumption, doesn’t reward frugality, glorifies bigger-thanneeded homes as investments and big mortgages as a cost of investing.

The popular cry during the meltdown of 2008 was that Canadians and North Americans needed to get their fiscal houses in order.

Ever since, it’s essentially been government policy touted by economists that low lending rates are an essential part of the ever-fragile, ever-recovering economy.

While there is individual responsibility at play here, the blame for it all hardly rests solely with households.

The 2008 crisis was caused by the collapse of the U.S. housing market. Its spread and resulting economic contraction suddenly made paying off accumulated debt on credit cards, lines of credit, that new holiday camper, the too-big house, more difficult.

At the root, though, banks, mortgage lenders, investment firms, land developers, automakers and credit card companies were overextended themselves, borrowing too much to happily lend it out to bad-risk customers.

As for the economy, in Alberta at least, once again a boom that was supposed to last forever, didn’t.

At that point 10 years ago, each Canadian owed about $1.47 for every dollar of disposable income. Today that same figure is $1.70, down only slightly from an all-time high late last year.

The non-mortgage total for consumer debt is currently about $1.3 trillion, or about $22,800 for every man, women and child in Canada.

While it’s righteous to talk about living within our means, and go on about the merits of belt-tightening, it’s disingenuous as best. Large portions of the population longs for a return to the carefree economy of pre-2008.

In Medicine Hat, you can’t throw a rock without hitting someone whose cure-all idea for the local economy is high-end real estate development. That’s in an area with some of the lowest wages in the province, where the majority of housing needs should be more modest.

But, such is the contradictory message that citizens have to deal with — that and the cost of living, and steady increases to common non-mortgage financed items like tuition and vehicles.

Even rocketing home prices in part of the country, bolstered no doubt by cheap lending costs, is a doubleedged sword. Homeowners complain about home values when they pay their property taxes, but not so much when they sell.

Indeed the runup on house prices in Canada’s largest cities has made millionaires out of even modest homeowners.

It’s not as easy as wagging a finger at those who are taking on debt, as almost every homeowner does.

Rare is the case when a real estate investor, landlord or entrepreneur doesn’t take on or “leverage” debt to get into business or expand.

It’s often argued that keeping interest rates low is crucial to “kickstart the economy” at the same time that average citizens are supposedly vulnerable to higher payments resulting from higher interest rates.

Consider that a Statistics Canada study last year found those with higher net worth carried disproportionately large amount of debt — that is, borrowing by the wealthy outpaced their lower-income counterparts even when relative circumstances and take-home pay are factored in.

The analysis is clear, though perhaps contrary to common belief.

Yes, debt is problem. Are we to believe, too, that debt is also the solution?