Rich-poor gap could spark financial crisis in Canada: Report
Canada's income inequality has reached a level not seen since the 1920s, says the Canadian Centre for Policy Alternatives. (Shutterstock)
The gap between the rich and the poor in Canada is getting wider and could eventually lead to an economic collapse, according to a new report by a left-wing think-tank.
Income for middle-class Canadians has remained stagnate since the 1980s, while the income of the richest 1% has increased dramatically, according to Dalhousie economist Lars Osberg.
As a result, Canada's income inequality has reached a level not seen since the 1920s, says Canadian Centre for Policy Alternatives.
A few people accumulating huge savings while most people rack up debt is a recipe for disaster, the report argues.
"When those at the top keep amassing income, their growing savings have to go somewhere. For a while, lending to the mortgages of the middle class can prop up GDP growth, but middle class incomes have not been growing, so their consumption is maintained by ever-deepening debt," said Osberg in a press release.
"When the rising savings of the rich are parked in the financial markets, but everyone else falls deeper into debt, a house of cards is created, producing the kind of economic instability that led to the 1929 financial sector crash and the market meltdown of 2008."
Whether economic equality causes financial meltdowns is a controversial topic for economists.
Earlier this year, researchers at Rutgers and the University of California argued in a working paper that financial collapses tend to follow periods of loose-lending rather periods of extreme inequality.