I don’t understand how every time the topic of lower interest rates comes up in a public forum, we hear the same song sung in perfect harmony by the experts– it’s bad for the economy – it’s bad for the consumer because lower rates will encourage people to borrow more – especially bad is mortgage debt, and we have too much household debt already. Etcetera, etcetera, etcetera.

Then we hear about the credit crunch of 2007 and that nobody wants to go back there. The message from the experts is familiar in this domain, too. They claim to be worried about out of control debtors and how high interest rates best controls borrowing.

There are all kinds of problems with the above rhetoric. First and foremost, the issue of household debt is based on confusion that results from mixing apples with oranges. Or, in financial terms, mixing consumer debt with mortgage debt. They are two very different types of debt.

Mortgage debt refers to real estate which is an asset. Unlike most consumer debt, mortgage debt is secured against the asset. So the amounts owed against mortgages – the debt totals are not real figures. You have to subtract the asset from the debt to get a net debt figure – if any. In most cases there is equity for the consumer.

Mortgage debt represents a historically prudent investment in real estate. With the exception of car loans and secured lines of credit, consumer debt, which includes credit cards does not have any security. It’s unsecured debt that more accurately reflects shopping habits – both good and bad – and would be a much better gage as to who is out of control with their spending than mortgage debt, or what the deeper problems might be with poverty and wealth inequality in Canada.

So, if the government and financial institutions are worried about consumer debt – the dangerous unsecured stuff – then they could regulate, or the financial institutions could fine-tune their policies, to target specific problem areas rather than attack all debt – that is to say, differentiate between good and bad debt. Leave the good debt alone and zero in on the bad debt.

Prevention is always the best cure - for potentially bad unsecured consumer debt causing economic trouble. Credit card lending practices and high interest rates would be a better target than to punish all consumers – both those with prudent investments and those who have lived a profligate lifestyle.

Secondly, if anyone is really authentically worried about high debt levels – and I say the problem is consumer debt not mortgage debt – then finding a way to get out of debt should be a priority – and one of the greatest obstacles to get out of debt is high interest rates.

So, those who advocate a blanket non-discriminate attack against high debt levels need to also develop policies that would assist consumers to get out of debt. That is the real issue here. High interest rates keep people in debt longer. They are counter-productive for the consumer - less money to shop and stimulate growth in other areas of the economy.

The matter of avoiding the 2007-08 credit crunch ignores the depth of the institutional fraud that led to the crisis in the U.S. From what I can see, the fraud has been either eliminated or reduced to such a minuscule level that it is no longer obvious or easily detectable. In other words, it wasn’t interest rates that caused the 2007-08 financial calamity in the United States.

I think lower interest rates is a brilliant strategy from the Bank of Canada that, with proper and more refined policies which target problem areas like unsecured credit card debt, could help people get out of the current mountain of $530 billion outstanding in consumer debt excluding mortgages in Canada. (As reported January 16th 2015 by the Bank of Canada.)

Let’s not try to hide everything under low oil prices. As Barack Obama declared in his recent State of the Union address, ‘surely we can set our sights higher than one oil pipeline or reduced world oil prices’. Getting out of debt should be one of our top goals.

If you need help getting out of debt – call us first!