Broke People Can’t Stimulate the Economy

 

The Bank of Canada issued a statement last week that our debt loads are killing any kind of economic growth. Well, that’s stating the obvious. Broke people can’t help stimulate the economy. Just ask the U.S. what 2008 to 2011 was like. When both Canada and the U.S. have about 75% of the economic activity being consumer spending – when you and I cut down our spending, there’s trouble.

Less consumer spending leads to less retail sales, less manufacturing and less economic activity everywhere. The next wave is less hiring or layoffs, and the vicious cycle escalates.

But it’s not your job to stimulate the economy with borrowed money. That’s a financial suicidal pyramid scheme. At some point, you’re out of money, out of room on your credit card, and can barely pay the payments  you already have. But that’s what the government needs you to do in order to keep the economy growing. So, on the one hand they’re tightening up mortgage rules to cool down the market and warning that our debt to income ratio is over 160%. On the other hand, they really need us to keep spending so the economy picks up. Yup, it’s a vicious cycle with totally mixed messages: On the one hand they kept lowering interest rates to make borrowing easier and cheaper, on the other hand they hit the brakes with more mortgage restrictions to not overheat the housing market.

I talked to a lady last week that was really concerned that her husband’s hours would be cut back. They really need to keep earning their $70,000 family income or they’re in real trouble. In other words, they’re buried in debt from previously helping out the economy so much. Now they’re out of the spending business because they “need” every dollar of earnings to just keep their head above water. And that story applies to millions of Canadians. It was fun while it lasted – but they’re now in the middle of one giant hangover.

For teenagers, the number one favourite activity is going to the mall. Teenagers help the economy. They’ll spend $10 or maybe even fifty bucks. But when they’re out of money – they’re out of money. They don’t have access to credit cards. While teenagers are a big part of economic activity, it’s all with real money and not borrowed funds.

That’s why tons of teenagers are richer than their parents. Sure, the parents have a lot more money each payday. But within 48 hours, that’s all spent and gone…and then some… on credit cards or lines of credit. Teenagers don’t have that curse or opportunity.

I’m all in favour of helping the economy – right after you help yourself and get to be debt free. Then you’re contributing to the economy with real money!

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