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.
Greetings again, oh slave of Panitch, from slave of Horowitz.
Every time I read your blog I get more of a feeling that I am looking out of the cave, and that the twenty-odd journalistic pieces on whatever economic topic (from the vapidly global to the routine pedantic piece on why we ought to save more, like our grandparents did) are so many wooden effigies parading in front of various smoky fires. So we wouldn’t need a revolution after all, just an adjustment of perception – says philosophy. But then perception these days is structured rather sclerotically by the bottom line, so that rational alternatives suddenly appear to be just about utopian.
I am no Panitch Slave nor do I wish to sit upon his porch. But I do have some good deal of respect for the man. Now the Horowitz brothers oi vey.
Colin you wrote:
“But then perception these days is structured rather sclerotically by the bottom line, so that rational alternatives suddenly appear to be just about utopian.”
I am starting to think that it is not. Bottom line would try to get to a win-win outcome. The hegemonic discourse is so myopic that it is willing to cut off its own nose to spite its face as the cliché goes. How does wallowing in ten years of deleveraging help any one? I think we have a classic micro-economic inspired fallacy of composition under foot. The efficient bottom line at the individual level, workers or capitalists, is to rationalize their operations but that very process undercuts individual attempts to rationalize. So savings be-gets stagnation which demands more saving (well really less consumption, because paying off debt is not saving). At the same time spending via credit is already at or near max. The only way we get out of the doldrums is by cutting debt servicing costs. That can be done via debt devaluation or something like I suggested in the post. But both solutions mean pealing back the veneer that glossed 1996-2007 and delegitimizing neoliberalism as a viable hegemonic accumulation strategy.
Liberal economists supposedly pride themselves on the fact that they understand that fixed capital is no reason to throw yourself under a truck and yet at the ideological level this is exactly what they are doing in both their neo-classical and reform liberal wings.
So yah these are liberal effigies.