This was reflected in the high persona bankruptcy

dn’t have equity to fall back on. This was reflected in the high personal
bankruptcy filings in both United States and Canada, where there were about 2.7 filing
per thousand in 2003 versus about 8 filings per thousand in the United States.
Meanwhile, the U.S. had a non-trivial number of low-income borrowers prior to
the crisis that were not servicing debt. Table 7 below depicts two different measures of
the debt to income ratios (Canadian average debt to average income vs American
aggregate debt to aggregate family income). These minor discrepancies in the depiction
of data is mainly because of the unavailability of the exact matching series in the U.S
data, and while the levels are different, we are more interested in how these levels
changed over time. As shown by the breakdown of the debt distribution in Table 7
below, even though the U.S. debt to income ratio is higher than the Canadian ratio in
every income class, the debt to income ratio of the lowest income class in the U.S is
shockingly high. This is because these mortgages were issued primarily to low income
borrowers without performing any test of ability to repay. Some of these mortgages did
not even require payments for a year or more. Interest owing was accumulated and was
to be paid in future. The assumption that house prices would keep rising was the basis
for most of these pseudo loans. This kind of reckless lending seems to fit nicely with
Setterfield’s scenario of consumption first then debt servicing, second.

83
Table 7:
Canada Av. Debt to Average Income
Ratio U.S Aggregate Debt to Family Income Ratio
Year 1999 2005 2012 Year 1998 2004 2010
All Quintiles 1.08 1.32 1.72
Lowest Income
Quintile 1.54 1.97 1.92
Lowest Income
Quintile (20%) 18.8 18.2 23.5
Second Income
Quintile 1.66 1.93 2.77
Second Income
Quintile (40%) 16.6 16.7 16.9
Middle Income
Quintile 1.74 2.15 2.73
Middle Income
Quintile (60%) 18.7 19.4 19.5
Fourth Income
Quintile 1.09 1.4 1.7
Fourth Income
Quintile (80%) 19.1 18.6 19.3
Highest Income
Quintile 0.67 0.76 1.11
Highest Income
Quintile (80%-90%) 16.8 17.4 18.0
Highest Income
Quintile (90%-
100%) 10.3 9.3 9.4
SOURCE: FEDERAL RESERVE SURVEY OF CONSUMER FINANCE AND STATS CANADA (CANSIM TABLE # 202-0701 & 205-
0003) AND AUTHOR’S OWN CALCULATIONS
Since income inequality was and still is greater in the U.S. than in Canada, one
could surmise that wage-led growth may be relatively more important in Canada while
profit-led growth was more important in the U.S., especially that Canada's housing
0
5
10
15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Percent
SOURCE: STATISTICS CANADA (CANSIM TABLE # 380-0061) AND FEDERAL RESERVE
ECONOMIC DATA (FRED; TDSP) AND AUTHOR'S OWN CALCULATIONS
Figure 23: Seasonally Adjusted Debt Servicing Payment as Percent of
Personal Disposable Income
U.S Canada

84
sector survived the crash as did Canada's banks. We keep hearing from market analysts
that Canadian debt is too high, yet no problems have arisen. Canada's main economic
problems, it is commonly argued, are currently due to low resource prices, and
surprisingly despite these low resource prices, we do not hear of large-scale financial
distress. That is not true for some other resource-exporting nations.