The fallout from high debt levels

Canadians have taken on a record level of debt, with many analysts and officials warning that the country is sitting on a debt time bomb. Benjamin Tal, Deputy Chief Economist at CIBC, tells BNN that in the years to come Canadian consumers will be forced to spend an increasing amount of their income on servicing interest on this high level of borrowed money.

“The story is not about subprime in Canada, that’s not where the focus should be…the story is that higher interest rates will shift consumption from what we buy towards servicing debt,” he says. “As a society we became more sensitive to the risk of higher interest rates.”

The result of such a shift in consumption will alter the standard of living, Tal says.

“The credit that was there to support a life style that you could not afford will not be there because you will not have the wealth effect [from rising real estate values].”