Wow is the only word I can use to describe the credit situation in north American (US and Canada). One would figure that all participants would put things together and realize that we are on a path of financial annihilation. Ok, maybe that last comment was a little over the top, but bottom line we need to check ourselves before we do more damage. This will be hard to do with all the lending products out there like unsecured loans and the like, the masses are acting like teens with their parents away for the weekend.
After the mortgage meltdown in the US the world began to feel the ripple effect in their own economies. Most countries are so closely tied together economically that even minor recessions can lead to major turmoil in the form of crippling blows to industries, layoffs and short term interest rate hikes. It seems governments look to the masses to spur the economy through additional spending. How do they do that? It often comes in the form of lower interest rates and the promotion of crazy credit offers. The problem becomes that if the masses bite and start spending; they more often than not use credit and pile on additional debt.
Debt servicing ratio is one measure of how much debt one can carry. One figure that is use is 35% debt to income. Which means if you total up all the payments you make towards debt and they are equal to or lesser than 35% you should be able to comfortably service that debt (or pay for it). This maybe the elastic band that snaps spending back except the problem becomes the credit companies see how much profit they can make and push credit offers even more.
This becomes the soft spot of this system that without responsible lending with a period of time it can send a countries economy out of control, then the domino effect and tons of people pay the price. Thoughts?
