I recently had a rather spirited discussion about how the Bank of Canada’s recent rate decrease would affect my clients. The other party to the discussion was adamant that what was good for the macro economy would be good for the participants in that economy, namely you and I. But is that true?
When central banks tinker with interest rates their actions have been likened to a party host and the host’s punch bowl. If interest rates increase, it is as if the host says party over and takes away the punch bowl. But the Bank of Canada has in effect said party on! Have some more punch!
Canadians’ average debt to income ratio is HIGHER than US citizens’ were pre 2008. This is not sustainable. There are 2 ways that unsustainability can end: In a painful or pain free manner. Recall what happened to many US citizens after the financial crisis.
Taking on more debt should only be considered in the context of an individual or family’s long term plan. I am not sure if the Bank of Canada cares if you get tipsy but I do!