Canadians are even deeper in debt than Paul Krugman thinks they are, says the Canadian Centre for Policy Alternatives.

In an article on the CCPA website, Armine Yalnizyan cited Paul Krugman, Nobel Prizewinning US economist and blogger, who recently spoke to the Canadian Bar Association.

Household budgets are a bigger part of the economy, and re-balancing them will take a lot longer if governments prioritize putting their own fiscal house in order first. On this front, Krugman notes, Canadians have little reason to be sanguine about what happens next.

Though our labour market did not lose jobs for 27 long months as in the U.S., he reminds us we have one of the worst debt to income ratios in the world.

In fact Canadians have the worst debt to income ratio of 20 OECD nations.

He went on to deliver this shocker: today Canada’s household savings rate ($2.80 on every $100 dollars of household income) is less than half that of the U.S. ($6.40 on every $100). He said that’s the first time this has occurred since the 1970s.

Yalnizyan said household debt is even worse than Krugman thinks: "You actually have to go back to 1938 to see Canadian savings rates this low."

Interest rates are so low that it's easy to borrow, Yalnizyan said, but it's also getting harder to save because incomes are stagnant while costs of housing education and transportation all keep going up.

Rising debt levels since the crisis began is one obvious indication of how hard this is going to be: In the fall of 2008, before the crisis hit, Canadians owed $1.40 owed on every dollar of disposable income. That broke all previous records. At last count (1st quarter of 2010), the average Canadian household owed $1.47 on every dollar they took in.

Krugman reminds us of what we all know: interest rates have nowhere to go but up. Indeed, it’s a fine balancing act, leaving behind an era of easy money, and making ends meet.

Crawford Kilian is a contributing editor of The Tyee.