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I bought Stephen Harper's book and I can not wait to read it. However, I hope that his badysis of populist politics is more credible than his badessment of his mandate. The mirror of the former prime minister presents blind spots.
"Under my government, Canada avoided the worst of the crisis and came out of it all the stronger," Harper wrote. extract of Right here, now this was published in the National Post on October 5th. "In every respect, we have left the country healthy."
Many measures, of course. but not everyone.
The ratio of household debt to disposable income was 167% when the Harper Conservatives were beaten by Justin Trudeau's Liberals in the fall of 2015, compared to 132% in early 2006, when Harper began his nine years as prime minister.
As has often been pointed out, Americans have borne the same burden before the financial crisis. And now, household debt is the Achilles heel of the economy. Unemployment is at a level that economists badociate with full employment and exports hit record highs earlier this year. But all this debt makes Canada vulnerable to shock; let's say an economic crisis in China that crushes global demand and lowers commodity prices.
In such a scenario, all exporters who loved life this summer would be in trouble. The unemployment rate would rise, investments would fall and a wave of failures would probably follow. This could be bad, and that is why the Bank of Canada raises interest rates so slowly.
High levels of employment and surveys that show companies struggling to keep pace with orders imply upward pressure on the rate of inflation, which the central bank is responsible for containing. But policymakers do not want to be behind one of these negative shocks by raising interest rates faster than indebted households. (The frenzy of the Canadian debt continued after Harper's departure: the ratio peaked at 170% in 2017 and now stands at around 169%.)
"Debt to income is still very high," Carolyn Wilkins, Senior Deputy Governor at the Bank of Canada, told reporters Wednesday.
Wilkins is not really shy about the media, but she tends not to speak in public for the sake of it. His decision to give journalists some time was to point out that the central bank is doing a lot of work on the debt and the threat that this represents.
The Bank of Canada unveiled this week its Financial system, an online magazine that will serve as a clearinghouse for its latest research on the housing market, credit conditions and other issues that affect the stability of the financial system. (The Financial System Review, published twice a year, will be published only once, in June.) According to Wilkins, the latest research suggests that the threat of debt collapse is narrowing, but only very slowly; The mountain of Canadian debt will cast a shadow over monetary policy for a long time.
One of the new central bank research papers Explain Why.
A team of seven staff members developed a series of models to anticipate what would happen if the average house price in Canada decreased by 20%, with even greater declines in Toronto and Vancouver. (They point out that they view this hypothetical scenario as a "low probability" event.)
The good news is that Canada will avoid a real financial crisis, in part because the country's banks have enough money in reserve to deal with such a storm. But the damage would always be serious.
Mortgage rates would remain stable, but only because policymakers would be forced to reduce the benchmark loan rate to offset a five-percentage-point decline in gross domestic product over two years. Ontario and British Columbia would be the hardest hit. Consumption would decline, in part because homeowners would suddenly feel poorer. Some would actually be poorer because they would be unemployed. Companies would find it more difficult to obtain loans when banks are reduced.
"The losses are not big enough to trigger withdrawals or incendiary sales," the authors conclude. "Nevertheless, pro-cyclical behavior in the financial system could magnify macroeconomic effects, even if the resilience of the financial system is not threatened."
Some people think that a collapse of the real estate market is inevitable. According to this vocal minority, Bank of Canada Governor Stephen Poloz and his predecessor, Mark Carney, left interest rates too low for too long after the worst of the financial crisis. History suggests that these critics might be right; According to Poloz, inflation was low and a stronger economy would put households in a better position to repay their debts.
But if the Bank of Canada is to take responsibility for the country's excessive debt burden, the same goes for Harper, who was still reluctant to use the government's regulatory power to reduce Canadians' hunger at home. regard to low interest rate loans.
A separate research paper published by the central bank shows that tighter credit conditions make the financial system safer. For example, the newly imposed criteria on the borrower's ability to pay in the event of a deterioration in economic conditions led to a decline in new mortgage offerings with a loan-to-income ratio greater than 450%; these broadband loans accounted for 6% of home loans in the second quarter, compared with 20% at the end of 2016.
Harper has made budget balancing a top priority after the Great Recession. This decision put an end to the stimulus measures of an economy that still needed it, forcing the central bank to keep interest rates low. The federal finances were healthy when Harper left office. The balance sheets of the households, on the other hand, were in a deplorable state and we are still paying them.
• Email: [email protected] | Twitter: carmichaelkevin
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