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According to most reports, the Canadian consumer is about as fiscally responsible as a drunken sailor on shore leave. This is far from accurate – a closer look at the data shows the spending and borrowing behaviour of Canadian households is completely reasonable and there are few signs of imminent disaster.

The mid-term may prove a bit more treacherous.

The chart below illustrates the dichotomy between the Canadian consumers' short and long term financial outlook. The debt service ratio – total debt payments as a percentage of disposable income – suggests that, not only is the current level of household debt sustainable, it's also more comfortable than at any point in the past 30 years.

Debt Service Payments as % Disposable Income vs Total Debt/Disposable Income %

SOURCE: Scott Barlow/Bloomberg

The total debt to income ratio, however, implies that domestic households are massively stretched and debt loads form an economic Sword of Damocles threatening to topple the entire nation's gross domestic product.

The chart indicates that Canadian household finances are entirely healthy and responsible now, but increasingly vulnerable to changes in the interest rate or economic growth backdrop.

In short, the consumer balance sheet is debt bomb with a really long fuse. As long as mortgage rates and employment levels stay where they are, everything's great. Borrowing has slowed and if rates remain low, this will allow households to rapidly pay back loan principal and steadily reduce debt loads.

But, if this process is short-circuited by a sharp rise in interest rates or unemployment levels, then consumer demand dries up quickly as debt payments eat up a far larger share of disposable income.

The longer term financial health of the Canadian consumer comes down to a race against time. If the total debt (relative to income) can be paid down before rates move significantly higher or a job-killing recession occurs, the debt bomb will be more like a harmless firecracker.

The negative scenario would see household debt levels climb significantly from here. In this case, when the inevitable debt deleveraging process occurs, it will be big, rapid and harsh for both economic growth and the major lenders.

Follow Scott Barlow on Twitter at @SBarlow_ROB.