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Saturday, February 25, 2012

Canadians need to be wary of mounting debt, central bank warns

   Canada column for Sunday, Feb. 26/12


   (c) By Jim Fox

   Canadians who have taken advantage of record-low interest rates must moderate their debt load or possibly face “substantial negative economic consequences,” the Bank of Canada warns.
   In a research paper, Canada’s central bank said many Canadians have constructed their finances on a “house of cards.”
   This could come crashing down once interest rates start increasing or if housing prices fall, it said.
   The bank cautioned that families have taken on too much debt but didn’t expect there would be a U.S.-style housing meltdown as banks have more stringent credit regulations in Canada.
   Debt loads have been rising, with a typical 31- to 35-year-old now owing $120,000 compared to $75,000 a decade ago, the report said.
   Finance Minister Jim Flaherty said interest rates have “nowhere to go but up," although economists don’t suggest that will happen for more than a year.
   “It isn’t necessary for everyone to have the most expensive house they can buy," he said.
   The concern is that house prices have risen sharply in the past decade and continue to do so along with debt for to pay for larger mortgages and home equity loans to finance other purchases.


   Two leading economists want the Canadian government to expand the five-percent Goods and Services Tax to include food.
   Michael Smart of the University of Toronto and Jack Mintz of the University of Calgary suggested eliminating the non-taxed items such as medicines, books, financial services and especially food.
  Governments could then pull in an additional $39 billion in revenue annually, leading to lower income taxes and more money for social services, they said.
   It could also cut almost in half the 12-to 15 percent Canadians pay in harmonized sales taxes in most provinces to obtain the same revenue.


   News in brief:
   - Sears Canada announced a three-year "transformation plan" starting with lower prices on 5,000 items in anticipation of Target coming to Canada next year to compete alongside Walmart. Sears had a net loss of $46.6 million in the third quarter last year and will cut back on the types of items it sells. With Target converting Canada’s Zellers’ stores, unionized workers are asking the U.S. company to give them first chance at the jobs.
   - Air Canada’s 8,600 mechanics, baggage handlers and cargo agents have rejected a tentative contract and authorized a strike, if needed. As well, a conciliator was named to try to help reach a contract settlement with the airline’s pilots. In a statement, Air Canada said it is “business as usual” and was confident there won’t be a strike.


   Facts and figures:
   Canada’s dollar returns $1.0022 in U.S. funds while the U.S. greenback is worth 99.77 cents Canadian, before bank exchange fees.
   The key interest rate of the Bank of Canada is 1 percent while the prime lending rate is 3 percent.
   The Toronto Stock Exchange is at its highest level in six month at 12,724 points on Friday and the TSX Venture Exchange index was higher at 1,687 points.
   Lotto 6-49: (Wednesday) 1, 12, 22, 35, 42 and 44; bonus 40. (Feb. 18) 4, 12, 14, 21, 22 and 37; bonus 28. Lotto Max: (Feb. 17) 1, 15, 26, 28, 31, 39 and 49; bonus 18.


   Regional briefs:
   - A Calgary woman who was badly beaten in a Mexican hotel has undergone facial reconstructive surgery and is recovering at home. Sheila Nabb, 37, was found unconscious in an elevator at the Hotel Riu Emerald Bay in Mazatlan while vacationing with her husband Andrew. Jose Quintero, 28, faces an attempted murder charge.
   - Three Waterloo Region firefighters have been credited with saving lives while on vacation in Florida and Mexico. Nick Dorken of Kitchener, Ontario pulled a man from his burning car after a crash near Fort Myers. Mike Pauze and John McCalmont of Cambridge, Ontario rescued a Calgary man from drowning in the Pacific Ocean at an Ixtapa resort.
   - Vancouver has overtaken U.S. cities to become the most expensive place to live in North America at 37th in the world. The Worldwide Cost of Living survey by the Economist Intelligence Unit put Los Angeles as the most expensive U.S. city at 42nd followed by New York at 47th. The study of 130 cities compares 400 prices on 160 products, including food, clothing, transportation, rent and private schools. Zurich and Tokyo were most expensive.


Jim Fox can be reached at canadareport@hotmail.com

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