Yet another article in the Globe and Mail today on line:
http://www.theglobeandmail.com/report-on-business/economy/household-debt-ratio-hits-record/article1835268/
...
BoC Govenor Mark Carney warns again ... let's see if it falls further on deaf ears.
Sometimes I just wish he would just quit the talk and actually do it ...
raise the rate 1/4 every Q and let the bubble slowly deflate vs. letting rates remain at historic lows exasperating a bubble (that will pop) and encouraging outrageous debt.
those who over-leveraged will get burned, but they never should have been participating in the first place
http://www.theglobeandmail.com/repo...lacency-can-lead-to-reckoning/article1835539/
Mark Carney warns again on debts: Complacency can lead to reckoning
Jeremy Torobin
Ottawa— Globe and Mail Update
Published Monday, Dec. 13, 2010 12:07PM EST
Last updated Monday, Dec. 13, 2010 7:47PM EST
The Bank of Canada is looking at new ways for monetary policy to guard against financial imbalances such as the build-up of household debt that has occurred amid historically low interest rates, Governor Mark Carney said Monday, warning borrowers, banks, companies and governments not to be complacent about such risks.
In a speech to the Economic Club of Canada in Toronto, Mr. Carney repeated his concerns about the debt loads of Canadians rising faster than their incomes, and, while saying further interest rate hikes would need to be carefully considered, stressed that borrowing costs would eventually begin rising again.
Saying it is the central bank’s responsibility to “draw the appropriate lessons” from past experiences where the perception of endless stable prices led countries to “financial disaster,” Mr. Carney said policy makers are examining how they might play a supportive role through pre-emptive actions.
“Experience suggests that prolonged periods of unusually low rates can cloud assessments of financial risks,” he said in the text of remarks he was delivering. “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.”
Mr. Carney and central bank officials have suggested on several occasions that they view narrowly tailored regulatory changes, such as the Finance Department’s tightening of mortgage rules earlier this year, as the most effective and appropriate tools for reining in household borrowing.
The Globe and Mail reported Monday that the federal government, in its pre-budget consultations, is in talks with Bay Street financial executives about what further steps could be taken. Also, Prime Minister Stephen Harper on Monday said the amount of household debt amassed by Canadians is a ``matter of concern for the government’’ and that Ottawa is looking at ways to encourage better decision-making among borrowers.
Mr. Harper made the comment in televised remarks at an event in Quebec, without elaborating.
The central bank’s warnings about household debt have become sharper in recent months as global economic uncertainties and a slowdown in Canada make the need to keep its benchmark interest rate – currently at 1 per cent – steady for longer more evident.
With the central bank scheduled next year to renew its inflation-targeting agreement with the Finance Department, Mr. Carney and his policy team have been looking closely at how their mandate might be tweaked so they could play a greater role in ensuring the stability of the financial system, instead of being limited to controlling prices.
Statistics Canada reported Monday that the ratio of household debt-to-disposable income rose to 148.1 per cent in the third quarter, topping the 147.2-per-cent ratio in the United States as measured by the U.S. Federal Reserve. That marks the first time in more than a decade that the ratio has been higher in Canada than south of the border.
Also, Mr. Carney noted in his speech, the global and domestic economic environments have become more complicated in recent months.
In Canada, policy makers are trying to keep the most at-risk borrowers from taking on more than they’ll be able to handle when rates rise, emphasizing that personal responsibility is key.
At the same time, they warn that future economic growth will depend on higher business investment and a better export performance as more consumers pull back. But the sluggish U.S. rebound, as the world’s biggest economy fails to grow quickly enough for the unemployment rate to fall, and the debt crisis facing several European governments, have made the picture for Canadian sales abroad murkier.
“Current turbulence in Europe is a reminder that the crisis is not over, but has merely entered a new phase,’’ he said. “In a world awash with debt, repairing the balance sheets of banks, households and countries will take years. As a consequence, the pace, pattern and variability of global economic growth is changing, and Canada must adapt.’’
The trouble abroad, in turn, means that interest rates in most of the so-called advanced economies are likely to stay low for longer, increasing the scope for risky behaviour outside Canada’s borders too, Mr. Carney said.
“While low current interest rates create short-term fiscal flexibility, they expose budgets to any increase in policy rates and abrupt changes in private market sentiment,’’ Mr. Carney said. “Countries would be wise to heed the lessons learned by Canada in the 1990s: the bond market is there until it is not.’’
Canada's banks may have earned international praise for their financial prudence but they should not make the mistake of becoming complacent at this juncture in the crisis, Mr. Carney said.
“They've earned that reputation, but reputations have to be earned every day. They are hard to build and easy to lose,” he told reporters following his luncheon address.
The World Economic Forum recently rated Canada's banking system the soundest in the world for three years straight, but Mr. Carney said banks, insurance companies and private investors all have to be careful in the current environment.
“Don't assume that things can go on forever,” he said.
