Bank of Canada governor Mark Carney issued a staunch warning to Canadians about the perils of cheap borrowing Monday, just as fresh data suggested household debt-to-income ratios have jumped to record highs. He issues the warning amid a near record low 'interest rates' and wonders why? Perhaps he sees record negative equity around the corner?

"Household debt levels are at unprecedented levels relative to income — the level of vulnerability of households remains high," Carney told a news conference after a speech in Toronto. Spurred in part by record low interest rates, Canadians have rapidly increased the amount they have borrowed during the recession and recovery. And the proportion of households with stretched finances has ballooned as a result, Carney explained in a speech to the Economic Club of Canada.

Meanwhile, Statistics Canada said Monday the ratio of debt to disposable income rose to 148.1 per cent in Canada in the third quarter — a close to five point jump — slightly ahead of the U.S. ratio of 147.2 per cent.

The increase means Canadians now owe $1.48 for every dollar of disposable income they have. That nice to know..NOW

The numbers also come amid reports Ottawa is talking to lenders again about the possible need to clamp down on credit.

Finance Minister Jim Flaherty and Prime Minister Stephen Harper each weighed in on consumer debt levels Monday, suggesting that while Canadians are responsible for their own finances, the government isn't opposed to stepping in beside they are creating the environments.

Flaherty told reporters (will he still say this next month) that he has been talking to the banks about the situation and has been monitoring debt levels, but he does not believe that any action is needed at the moment.

"Affordability is what is important, and if you talk to the banks about default rates — and I talk to them often on this subject — there is not reason for extreme concern now," he said.

During a visit to Thetford Mines, Que., Harper suggested the situation is the result of individuals' choices and the government can't control how they spend. "We continue to warn Canadian households that interest rates are unlikely to go down in the future. They're far more likely to go up, so Canadians should plan accordingly," he said.

TD Bank chief economist Craig Alexander said it was natural that the government would explore ways to constrain borrowing, but said he also does not believe the situation has reached a crisis.

"Debt relative to income has gone up a little faster than it should have, but the problem is not excessive ... we don't have a U.S.-style problem," he said, referring to the better quality of Canadian debt which like our national debt is largely owned by the Chinese

He added, credit expansion has slowed of late and many economists believe it will return in line with income growth going forward.

Alexander says Carney is in a "bind" because the weak economy requires him to keep interest rates at near-floor levels for an extended period in order to lure businesses into spending on investments. But those same low rates may cause households to overextend themselves, which could result in difficulties when interest rates rise. He said the government may need to take steps to rein in consumers if house prices begin rising again. More taxes perhaps..?

For his part, Carney said changes to mortgage qualification rules that took effect in April, as well as three subsequent decisions to push the central bank's key interest rate to the current one per cent, are beginning to have an impact on slowing debt accumulation. I would like to see these figures Mr. Carney.

"We've seen a bit of a deceleration in the rate of growth of consumer debt, but it's still growing faster than income," he said. and Mr. Carney noted with alarm that household credit has grown by seven per cent since the recession's trough, compared to a 3.5 per cent decline in the U.S., perhaps an indication that Canadians believe the easy ride on debt payments will be permanent.

When the reckoning comes, he warned, it could be swift and brutal. The Bank of Canada will set interest rates based on inflation, not on whether a large swath of Canadians have taken on too much debt, Carney added.

"Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce; the greater the complacency, the more brutal the reckoning," he said.

One reason for the tough talk, say analysts, is that Carney wants to discourage reckless borrowing among consumers with words because his hands seem to be tied on action. Raising rates would further slow an already slow-moving economy. I was wondering at what rate reckless borrowing starts and how it is identified?

While the debt-to-income ratio has risen in the latest quarter, Statistics Canada pointed out that the main reason is not because of more borrowing, but due to a 1.5 per cent decline in disposable income.