Land of the Empty Wallets

More than half of Canadians are living within $200 per month of not being able to pay all their bills or meet their debt obligations, according to a recent Ipsos survey conducted on behalf of accounting firm MNP.

For 10 per cent of Canadians, the margin of error when it comes to household finances is even thinner, at $100 or less.

But those with anything at all left at the end of the month were in better shape than many: A whopping 31 per cent of respondents said they already don’t make enough to meet all their financial obligations

Debt is causing Canadians a fair bit of stress, the polling suggests, but few appear to be on track to buff up their monthly financial cushion.

Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund.

Another hair-raising finding from the survey: Roughly 60 per cent said they don’t have a firm grasp of how interest rates affect debt repayments. Such data raises the question of whether Canadians understand the implications of an interest rate hike by the Bank of Canada (BoC).

As an example a one percentage point rise in the BoC’s key interest rate would likely push up variable mortgage rates by a similar amount. A variable mortgage rate that’s currently set at 3 per cent, for example, would go up to 4 per cent, which represents a 33 per cent increase in interest payments for the mortgage holder. That’s an extra $83 a month for every $100,000 in outstanding mortgage debt.

A decision by the BoC to start lifting its key policy rate from historic lows would raise the cost of carrying debt across the country. The Bank uses interest rates, among other tools, to influence inflation and economic activity. Many economists believe it could start to raise rates in the first half of 2018, as economic growth picks up pace.

Although typically the BOC raises rates gradually and over time, the impact on Canadian wallets will be substantial.

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Earth Day: Time for Science (Maybe Someday Common Sense)

According to The Google, today we honor the rich, vast Earth that’s sustained generations before us and continues to nurture life and inspire wonder. At an estimated 4.543 billion years of age, the Earth is still the only known object in the Universe known to harbor life. It’s also the densest planet in the Solar System and the largest of the four terrestrial planets. That’s quite an awe-inspiring roster of qualities, if you ask us.

Furthermore today’s Earth Day has also rallied an additional movement The March for Science whose website indicates that the March for Science is the first step of a global movement to defend the vital role science plays in our health, safety, economies, and governments.

Who can argue with any of the above? Here at CASE, we can’t argue with many of us being avid enjoyers of the simpler pleasures that only nature can provide; hiking, canoeing, cycling, organic gardening, fishing, hunting…the list goes on and on. Not only are such activities righteous, but also prove to be economically low impact on one’s pocket book, and good for ones long term physical, mental and spiritual health…important attributes for us in order to peak perform for our clients.

Today’s Earth Day, now bringing to our attention, the noble focus of science as it relates to all things Earth allowed us to recall some wonderful scientific numbers that were originally brought to our attention by Mark Bonokoski (Sun Media) back in the summer of 2016 to wit:

Canada has 990-million acres of forests, 370-million acres of wetlands and 167-million acres of crop yielding farmland. These are known as “carbon sinks”.  Biologists tell us that trees absorb about 2.6 tons of carbon per acre. So if you do the math 990-million acres x 2.6 tonnes per acre = 2.574 billion tons of carbon being absorbed every year. Now if you do more math: 36-trillion tones {the amount of world emission}x 0.0167 (1.67%) = 601.2-million tones. —  This is the amount of carbon that Canada contributes to the world emissions.– In the forests alone, Canada absorbs almost four times the amount of carbon that it emits. This means that the other three quarters of our forests are being sustained by carbon being emitted by the rest of the world. This calculation does not take into account the wetland or farmland that also absorb carbon.

We’re excited to see the new focus brought to us by March of Science. Many these days seem hell bent and focused on the idea that its money that solves all problems, including the challenges faced by our natural environment by way of carbon taxes (or carbon levies if that sounds less expensive to the economy).  Perhaps bringing science and mathematics (fully appreciating we get it, math is hard) more will come to recognize that money isn’t the cure to what ails us.

Perhaps the next step in the evolution to the ‘earth debate’ will soon include A March for Common Sense; frugalness, simplicity, contentment and avoidance of conspicuous consumption.  And the beauty of it all is not only will common sense not cost us money, it’ll save us money!  Shouldn’t conservation entail conservation of everything, including our wallets? Unless of course if there is ulterior motives to those promoting money (taxation, levies et al.) as the solution to earths challenges.

Furthermore as any theologian, irrespective of denomination, that is worth his (or her) weight will tell you;

When earth becomes our obsession, anxiety becomes our lord.


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Alberta: Government Fueling the Debt Culture

Today’s sheep are spared, so that tomorrow’s may be more lavishly fleeced.

Finance Minister Joe Ceci’s budget released this past Thursday showed a $10.3 billion deficit for the coming year and that Alberta’s debt would rise to $71.1 billion by 2020! Remember it was only 12 years ago, in 2005 in fact, that Alberta was debt free!

The province’s deficit for the coming year is $200 million higher than the government had forecast at last year’s budget announcement. Similarly, the fiscal plan shows next year’s budget deficit will be $9.7 billion, compared with the previous estimate of $8.4 billion.

Premier Rachel Notley said she knows Albertans are worried about the growing size of the debt, but said it is “absolutely manageable.”

Ceci’s ministry budget also shows the province’s debt-to-GDP ratio roughly doubling from current levels of 10.6 per cent to 19.5 per cent in 2020.

On Friday at an Edmonton Chamber of Commerce luncheon Ceci was quoted as saying, “With regard to financials, I can tell you we have the best balance sheet of any province, we have amongst the lowest debt to GDP and as we go forward we will address our debt servicing and the debt we will accumulate.”

So in essence at street level, what I’m hearing from our leaders is;

  • Little Suzy wants a pony and riding lessons? She’s entitled to it, she deserves it, take on debt to make it happen, its absolutely manageable, the math shows it, your income is guaranteed to be going up over the next 4 years.
  • That fishing cabin you’ve always dreamed of on the Snake River outside of Jackson Hole Wyoming? You’ve worked hard, you’re entitled to it, you deserve it, borrow to make it happen, its absolutely manageable, the math shows it, your income is guaranteed to be going up over the next 4 years…and while you’re at it you may as well get that $2000.00 handmade custom bamboo fly rod you’ve always dreamed of… it’s only a few more bucks in the grand scheme of things.

All this is ok Chris because even with all the debt you’re taking on with the pony, Suzy’s riding lessons, a cabin and custom made bamboo fly rod your personal debt service ratio (PDSR) will still be lower than everyone else’s in the neighborhood. You can just address the debt servicing as it accumulates over time.

Are you kidding me?

Unsophisticated, credulous, naive and gullible.

But then again from where we sit what do we know about the long term negative consequences that debt has on people?

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Chicken Little Beware!

Ever since Trump’s unexpected victory at the polls, trade has been a hot topic here in Canada.

With good reason: President-Elect Trump has spoken of renegotiating NAFTA, the trade deal governing Canada’s relationship with its biggest export market the USA. On occasion, he’s even vowed to pull the U.S. out of the agreement entirely.

In 2015, the U.S. took in $325.4 billion worth of goods and services from Canada, or about 75% of our total exports.

Given Trump’s ongoing heated rhetoric on NAFTA both during the campaign and in the short time thereafter, he’s unlikely to backpedal—though it’s important to remember that, to date, his ire has been entirely aimed at Mexico, not Canada.

But while NAFTA may be in for some changes, dumping it entirely would be trickier than Trump’s rhetoric suggests.

For one, there’s plenty of evidence that the U.S. has benefited greatly from a more-open northern border with Canada.

Since 1993, when NAFTA came into force, American exports of goods to Canada—including machinery made in the Rust Belt states (that also proved to put Trump over the finish line on Nov. 8)—have jumped 179%. And exports of services have soared 237%, according to the Office of the U.S. Trade Representative.

Canada is currently the largest export destination for both America as a whole (taking in 19% of U.S. exports) and 35 individual states, so there would likely be pushback if Trump did anything that jeopardizes U.S. companies’ access to Canadian markets.

Something else to keep in mind is that, according to David MacNaughton, Canada’s ambassador to the U.S., if the U.S. were to withdraw from NAFTA, the two countries would still be bound by the 1988 Canada/U.S. free-trade agreement, signed before NAFTA added Mexico to the bloc in 1994.

Still, in light of the high level of interconnectedness between the countries, any change in trade terms—and wider U.S. fiscal policy—would have significant implications for the Canadian economy.

Meanwhile, from where we sit, we would encourage any chicken littles out there to simply relax, sit back, enjoy watching the s**t show the US political scene has become (if you’re into that kind of thing) and zero in on those things that are within your control to successfully manage your business (ie. customers, sales, payables, receivables, quality assurance etc.). The last thing one wants to do is to dwell on those things that are not within your control. In the event that the Trump presidency does become the demise of the free world and its economy the last thing one wants to do upon being sucked down into the economic abyss is play the victim card, blaming someone else for your failure while in retrospect realizing you did absolutely nothing to help yourself to survive (other than complain). Victim mentality has never paid well, nor will it in the future.

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I want to do right, just not right now

dont-stopA new poll from CIBC finds that paying down debt is once again the top financial priority for Canadians in 2017, the seventh straight year that debt concerns have headlined the annual survey. Coming in at nearly 30 per cent, prioritizing debt repayment is at its highest level since 2010.

According to the latest data from Statistics Canada however, household debt, including mortgages, rose to a record 166.9 per cent of after-tax income in the third quarter, with debt loads rising faster than disposable income.

The findings also revealed that just over half of Canadians surveyed (52 per cent) plan to reduce their spending on non-essential items to meet their 2017 financial goals. Yet, only a quarter (26 per cent) will actually set a household budget, and fewer still (12 per cent) will meet with a financial advisor to get professional advice on how to reduce their debt and meet their financial goals.

For years Canadians have continued to say that paying down debt is a top priority while continuing to pile on debt in record amounts!

It appears that Canadian consumers continue to operate in a world of rainbows and unicorns governing themselves with the life philosophy of, “I want to do right, just not right now.”

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Y U No Listen?!

anyonelisteningAs MacLean’s Jason Kirby points out, the Bank of Canada, in a clear sign of desperation, has taken to YouTube to warn Canadians about the dangers of too much debt and unrealistic house price expectations. He wonders, however, whether anyone will listen considering on growing housing bubbles in some regions and household debt ratios continuing to grow.

As talked about ad nauseam in this blog over the years Canada’s household debt ratio data continues in an unabated uptrend going back 25 plus years and is showing no signs of slowing down.

In a video posted on December 19, 2016 on YouTube, in conjunction with the release of the Bank’s semi-annual financial system review December 15, 2016, Bank of Canada senior policy adviser Joshua Slive sketches out how Canada’s dangerous brew of debt and inflated house prices could combine to devastate the economy.

There is good news, Slive says. Stress tests show Canada’s big banks will be just fine even with a large drop in house prices (stress tests also showed that both Belgian Dexia and Spanish Bankia were perfectly solvent just months prior to their respectively failrues). It’s also important to note that the Bank, in its financial system review, said there is a “low probability” of a sharp correction in house prices (for what it’s worth once considering the overall predictive success rate of economists). Regardless, there is no getting around the immense damage such a scenario would have on the economy

Although central-banker dry, the message is stark, and shows the Bank of Canada is desperate for Canadians to heed its warnings on debt and rising house prices.

Whatever the case, the Bank’s video should be another wake-up call for Canadians, but “not that anyone’s listening” as Jason Kirby laments.

Here’s a link to the BOC video “The risk of household financial stress and a sharp correction in house prices” explaining things in under 2 minutes.


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We Have Moved!

movedEffective December 2016 we have moved our headquarters in Sherwood Park, AB. to a new location.

We’ve finally moved, but its not far, Here’s our address, so you know where we are.



Suite 280 – 2181 Premier Way, Sherwood Park, AB. T8H 2V1

All of our other contact information remains the same.


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Paying Out of Pocket to Keep Your Business Afloat

mnp-picUltimately, the purpose of any business is to make a profit. The value of any business is largely determined as a multiple of its profit or cash flow. While many, if not most, businesses lose money during their start up period, the losses will eventually have to stop in order to achieve success. If you are constantly having to put money into your business and particularly if you are taking on personal debt to do so, it might be time to take a hard look at whether the business should continue.

When starting a business, it’s a good idea to have a guideline in place as to how long you will tolerate losses. Typically a good gauge to start with would be a year, although it really depends on the business. For instance, it is my understanding that even some well-established chain restaurants expect their franchisees to lose money for at least that long. If you have gone past a year and you are still putting money in or you find you need to inject funds several years down the road it’s an important time to re-think the following:

  1. Will the losses continue? If yes, should you downsize or terminate the business? Note, the longer you put off the decision the more your personal funds are at risk and as a director, personally liable for such things as wages, source deduction and GST if they are not paid by the corporation.
  2. If the issue is cash flow, not profitability, can you negotiate new or re-financing, figure out how to collect accounts receivable faster, dispose of surplus equipment etc.?
  3. Do you need to consider a formal restructuring?

This is always a very hard problem for entrepreneurs who are, by nature, incredibly optimistic people that believe in their own success. If your business is operating at a consistent loss, it’s a good time to bring back to mind the old adage that says you should be working on your business, not in your business. If your business is a little too close to home reaching out to a financial advisor could give you the professional perspective you need to really assess where your business is at financially.

If your business is operating at a loss and you are starting to feel concerned, one of our corporate recovery and restructuring professionals for a free, no-obligation consultation. Together, we can assess your unique situation and explore all of the options available to you and your business so you can choose your best course of action moving forward.

Ian Schofield is a Licensed Insolvency Trustees within our Regina location. To learn more about how MNP Debt can help you, contact our local office at 306.790.7900.

The original article was posted on and is available here:

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Canada: An off-shore haven for cash?

auroraDespite speculation over the past year that Canada may very well be on the road to joining Japan and Europe in the negative interest rate policy (NIRP) club so far the Bank of Canada (BOC) has stood its ground maintaining the BOC rate at 0.50%. However, starting on December 22, for the broker dealer clients of BMO Nesbitt Burns, it will be as if the Canadian bank has cut its deposit rate on some currencies, to match the deposit rate of Switzerland.


palm-treesIn an internal letter sent November 21, 2016 from management, the bank explains that its current policy with respect to cash balances of foreign currencies held in client accounts – excluding U.S. dollars – has been that it “does not pay or charge clients interest on these balances.” As a result, the bank writes, clients have traditionally tended not to hold non-U.S. dollar foreign currencies in a BMO Nesbitt Burns account for any extended period. However, the notice continues, “given the current global interest rate environment (many negative), which has extended much longer than anticipated, we have seen an increase in foreign currency cash reserves across accounts; indicating clients are, in fact, moving these funds into their BMO Nesbitt Burns account in order to avoid negative interest charges on cash holdings in other accounts” they maintain with foreign banks domiciled in (NIRP) countries.

The internal letter from BMO Nesbitt Burns goes on to state that: “Effective December 22, 2016, we will begin charging clients a market-rate negative interest charge of 75 basis points on cash balances of all foreign currencies held in their account(s), excluding U.S. dollars. Interest is calculated on the average daily balance during the interest period. The first negative interest charge will cover the period of December 22, 2016 to January 21, 2017, and will be charged to all applicable client accounts on January 23, 2017.”

Welcome to the age of connected monetary vessels, where globally fungible money allows savers to bypass their own domestic “financial repression” and negative interest rates, by shifting their funds to an offshore bank account in Canada.  Sure, it’s only BMO Nesbitt Burns right now but the major Canadian financial institutions run in a pack.  There will soon be others.

Who would ever have thought 10 years ago that suddenly Canada would become a haven for off-shore cash like the British Virgin Islands and the Cayman Island, not as a tax haven, but rather as a place to hide from your country’s negative interest rates. But then again 10 years ago only the delusional would even consider the concept of negative interest rates, the concept of actually paying someone for the pleasure of ‘holding your money’. Are you kidding me?

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House of Cards

house_of_cards_lgBack in September it was reported that for the first time ever, the level of debt held by Canadians has exceeded the country’s gross domestic product as the red ink spilled over in the second quarter to 100.5 per cent of GDP, up from 98.7 per cent during the previous three-months. At the same time, Statistics Canada said the ratio of credit market debt to disposable household income climbed to 167.6 per cent between April and June, from 165.2 per cent in the first quarter of the year.  Total credit market debt was $1.97 trillion at the end of the second quarter 2016, while consumer credit alone, reached $585.8 billion and mortgage debt stood at $1.29 trillion.

Now, if that’s not enough to question Canadian’s insistence of continuing to skip through the current economic environment with rose colored glasses, this past week the Canada Mortgage and Housing Corporation (CMHC) released a report from its latest round of stress tests that a sudden increase in borrowing costs could lead to a 30 per cent drop in home prices, and even the failure of a Canadian financial institution.

The so-called “reverse stress test” scenario was based on a cumulative 240-basis point rise in rates over two quarters in 2016 and 2017. All over a measly 2.4% interest rate increase! If that’s not living on a knife edge we don’t know what is. Such a rise in interest rates would be far more devastating for the domestic housing market than oil at US$20 per barrel or an economic depression if you can believe it!

In the case of a high-magnitude earthquake, CMHC says home prices could dip 0.6 per cent and unemployment could peak at 8.4 per cent. Meanwhile, an oil price shock could lead to a 7.8 per cent drop in home prices and unemployment at 8.8 per cent. A deflation-induced depression could take home prices down 25 per cent and cause the unemployment rate to hit 13.5 per cent, according to the CMHC.

Naturally an individuals level of concern as to which one of these catastrophic events are the most probable; 2.4% interest rate increase, US$20 per barrel oil, economic depression or a high-magnitude earthquake will ultimately determine their “worry level” and will motivate them accordingly to prepare and protect themselves from the fallout.

Since the Trump presidential victory stateside less than two weeks ago, US 10 year treasury rates have risen 0.5% while the 30 year US fixed mortgage rate has also risen 0.5% to 4.00%.  One half-percent in only two weeks! But this is Canada right? This won’t have any type of impact on our rates. Not so fast, a big component that determines the strength of a countries currency is domestic interest rates. How long can Canada expect not to follow? The Loonie is currently worth 0.74 cents versus the US dollar. Canada standing pat on rates in order to maintain the house of cards may not do it. How would things be better for us with a dollar worth 0.60 or 0.50….sure our housing prices may be supported but what about the cost of everything else we import?

In response to the machinations above RBC announced on Nov 15, 2016 rate increases to current mortgage products of anywhere between .25% and .40% depending on mortgage type while the TD announced at the beginning of the month an increase to their prime lending rate of .15% to 2.85%

Craig Alexander, chief economist at the Conference Board of Canada was quoted as saying this past week, “For the next couple of years, interest rates are going to remain close to current levels. As a consequence Canadians can continue to finance their debt. Because there’s so much debt, the Bank of Canada can’t raise rates very quickly, or to very high levels.”  The vast majority of pundits and  prognosticators are singing from this same song sheet.  The degree of “confirmation bias” on the whole issue is running rampant!

It appears we’ve clearly painted ourselves into a corner. The contrarian in us is saying the surest bet at this point may very well be on an unexpected rise in interest rates as being the big ugly finger to topple our house of cards. That’s what makes big catastrophic events so big and catastrophic. The herd doesn’t see it coming. As debt collectors, we’re ready for it.

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