I haven't taken Economics 101 (isn't it obvious?), but Sal's conclusion that we are not headed for a double-dip recession rang false with me. The key statement that jumped out at me was this:
"Canadian consumers likely need to tighten their belts a little bit. There’s no question we are sitting at a record level of household debt right now. Debt has grown much faster than income in the past eight years, both mortgage debt and personal credit. That is simply unsustainable in the long run. Consumers will need to slow their rate of spending and borrowing back down in line with income growth, or else they will face a lot of stress going forward, especially when interest rates move back to more normal levels over the next couple of years."
Income growth? What income growth? Most people I know have had their salaries frozen for the last 2 years. Before that, the raises weren't even matching the so-called "cost of living" percentage.
The economist answer is that once the economy revs back up, companies will start giving raises again. But will those raises be enough to cover the total costs due to inflation over the last 2-5 years? No. They won't.
And that's a key point. Even during this recession, costs of living have continued to increase for food, energy, taxes etc. This contributes to the financial pressures consumers are under, forcing them to cut back on savings and/or borrow. And then interest rates rise, causing the debt servicing costs to go up, effectively punishing consumers for not getting raises.
Yes many people make dumb financial decisions. (If we were smart, the credit card industry wouldn't exist. The fact that it does, is evidence of what is wrong with our system.) But even the most fiscally responsible person cannot beat the math of rising costs outpacing income.
So my question to the super-expert BMO Senior Economist Sal Guatieri is this: How are we supposed to tighten our belts when our costs increase faster than our income? How do we avoid debt in that scenario? Tell me, I'm all ears.