There has been some considerable ink spilled over Canadian consumer debt to income ratios (I am not providing the links; that is why god invented google). I am one of these rare (in the aggregate but not rare) Canadians which has a debt to income ration of around 70%. The down side, for both me and my creditors, is that none of it is secured. So I made an appointment with a bank representative to see if there was some way to consolidate all the different unsecured debt into a nice little package with a fixed (low) interest rate and fixed payment schedule with the agreement that I would cancel all but my banks credit card which is unencumbered. The answer was yes it is possible but the interest rate is going tobe on average higher than the different rates on all my debt. About half my debt is at 5.5% the other half at 10% and the consolidation loan was the high end of 9%. All this, in an environment in which the central bank rate is 1%.
That is an 8% spread. If the government really wants to get debt to income ratios down and does not want serious deleterious effects on aggregate demand then it should empower the BOC to offer consolidation loans at 1.5% with the proviso that they are structured over a maximum of 5 years and no consumer credit lines can be taken up by the borrower for the term of the consolidation loan. Further, to back stop against the plaint that these are unsecured, the legislation can be past that effectively secures them. Here is how: take them out of bankruptcy provisions and empower revenue Canada to pursue payments via forfeiture of all tax credits until the balance is paid in full.
So what is the benefit to Canadians? The ability to individually deleverage without killing aggregate demand. This of course is far too pragmatic so it has no chance between two hockey sticks an E and two Ls of getting traction. But it does suggest that there are still some non-revolutionary options left on the table .
Of course we could always just wait for bankruptcy provisions to solve the problem and or a long protracted period of reduced aggregate domestic demand.