Canada Says World Making Mistake... Goes Opposite Route Of Developed World

[Economy 52,845]

https://www.bnnbloomberg.ca/canadians-deserve-credit-for-not-taking-credit-cibc-s-tal-1.1357643

 

Canada's Central Bank is now holds the highest interest rates in the developed world at 1.75%. it has resisted calls for cuts and says it has no intention to do so

 

USA is cutting, Europe is cutting (now in the negative rates plus money printing), non Euro European Countries are cutting, Australia has been cutting and Japan has left it's rates at rock bottom lows

 

The Central Bank of Canada says the effect on debt imbalances in consumer debt and price inflation in things like the housing market have to be considered and that lowering rates all the way to the bottom also means there's no room left to cut if all the stimulus power is used now

 

Canada has been an unusual outlier unwilling to make imbalances worse for the sake of short term economic stimulus and says will only cut if absolutely necessary and that other Nations could regret such extremely loose monetary policy now

 

Last year Canada expressed a goal to get to a neutral interest rate estimated in the 2.25% to 2.75% range when the economy is ready

[Economy 52,845]

In case anyone is interested in negative rates. Sweden was the first to do it (Japan was the first to go down to 0% and do quantitative easing tho)

 

 

[Economy 52,845]

@OBEY @ChrisC @JustinTrudeau @PunkTheFunk

@juicyjuicy @VANTABLACK

Considering Canada already basically has the worst consumer debt in the world tho (Australia and Netherlands are as bad or worse depending on the method used to measure it)...

 

I don't think us keeping our rates higher is gonna save us... Our domestic imbalances are still worse than most other Nations with lower rates

[Delulu Rogers 7,662]

Canada has so many problems. I don’t even now where to start. I agree with you though 

[swordstalker 1,829]

It’s not a great situation. But I like having the highest short term rates in the developed world! On the bright side, in case we need a backstop, the BoC balance sheet isn’t that big (<5% of GDP). 
 

But let’s not forget that Canada and Australia have been enormous sponges for soaking up excess East Asian savings since the GFC, so if they could figure their shiit out, that would be really helpful for our domestic household debt issue.

[Economy 52,845]

50 minutes ago, swordstalker said:

It’s not a great situation. But I like having the highest short term rates in the developed world! On the bright side, in case we need a backstop, the BoC balance sheet isn’t that big (<5% of GDP). 
 

But let’s not forget that Canada and Australia have been enormous sponges for soaking up excess East Asian savings since the GFC, so if they could figure their shiit out, that would be really helpful for our domestic household debt issue.

Yeah that's pretty small. We never did QE or greatly expanded money supply. If we ever had to we still have room to do so

 

I know I don't like this consumer debt vulnerability and those Asian savings ur talking about I assume u mean real estate purchases that then drive up cost of housing? If so yeah that's not helping

 

Stagnant wages combined with overconfident consumers hasn't helped either

 

One thing with Canada, Australia, Netherlands and Scandinavian Countries is we never had the kind of crash that caused a credit crunch and lending freeze like in the US or much of Europe...

 

Ppl in much of Europe and even in the US got a wake up call and a reminder of what can happen when you binge on debt and even if they wanted to borrow credit availability was low due to weak lending and so for a few years the consumer debt deleveraged a bit

 

Canada, Australia and much of Northern Europe got no such lending credit freezes in the systems or the same level of a wake up call so borrowing binge continued without a cyclical correction

 

Canada's housing market issue is a big source of this issue too tho

[swordstalker 1,829]

7 minutes ago, Economy said:

Yeah that's pretty small. We never did QE or greatly expanded money supply. If we ever had to we still have room to do so

 

I know I don't like this consumer debt vulnerability and those Asian savings ur talking about I assume u mean real estate purchases that then drive up cost of housing? If so yeah that's not helping

 

Stagnant wages combined with overconfident consumers hasn't helped either

 

One thing with Canada, Australia, Netherlands and Scandinavian Countries is we never had the kind of crash that caused a credit crunch and lending freeze like in the US or much of Europe...

 

Ppl in much of Europe and even in the US got a wake up call and a reminder of what can happen when you binge on debt and even if they wanted to borrow credit availability was low due to weak lending and so for a few years the consumer debt deleveraged a bit

 

Canada, Australia and much of Northern Europe got no such lending credit freezes in the systems or the same level of a wake up call so borrowing binge continued without a cyclical correction

 

Canada's housing market issue is a big source of this issue too tho

Yes to all of this. Our shadow banking was definitely insulated from America’s, and regulation around that helped a lot I think. I don’t know how we’re going to deal with this credit binge, but I’m glad to see that we’re not relying on easy money right away.

In terms of Asian savings, outright home/land purchases is part of it, but I was thinking more along the line of safe assets (ie., government bonds), and consumer debt (majority mortgage and home equity line of credit). The article you posted is correct in saying that we’ve slowed our debt growth, but I think long term imbalances still exist that will keep household debt high. Brad Setser has written extensively on this issue and touches briefly on the stagnant wage point you made, as well. If you have time, check this out:

https://cdn.cfr.org/sites/default/files/pdf/2016/10/Discussion_Paper_Setser_Asia_Glut_OR.pdf

Look at it through a balance sheet lens - someone’s debt is someone else’s savings. Someone must be producing a lot of savings for Canada and Australia to have so much debt. 

[Economy 52,845]

35 minutes ago, swordstalker said:

Yes to all of this. Our shadow banking was definitely insulated from America’s, and regulation around that helped a lot I think. I don’t know how we’re going to deal with this credit binge, but I’m glad to see that we’re not relying on easy money right away.

In terms of Asian savings, outright home/land purchases is part of it, but I was thinking more along the line of safe assets (ie., government bonds), and consumer debt (majority mortgage and home equity line of credit). The article you posted is correct in saying that we’ve slowed our debt growth, but I think long term imbalances still exist that will keep household debt high. Brad Setser has written extensively on this issue and touches briefly on the stagnant wage point you made, as well. If you have time, check this out:

https://cdn.cfr.org/sites/default/files/pdf/2016/10/Discussion_Paper_Setser_Asia_Glut_OR.pdf

Look at it through a balance sheet lens - someone’s debt is someone else’s savings. Someone must be producing a lot of savings for Canada and Australia to have so much debt. 

Dunno if u saw the video or only article but there was a point he talked about credit accumulation being at a 50-60 year low so that's a good part... The the vulnerability will stay there for a long time

[JustinTrudeau 2,419]

So how do you resolve this? Is this something consumers can do, or is it up to the government? I'm not an economic expert 

[swordstalker 1,829]

9 hours ago, Economy said:

Dunno if u saw the video or only article but there was a point he talked about credit accumulation being at a 50-60 year low so that's a good part... The the vulnerability will stay there for a long time

Oops I was on mobile and the video didn't embed so I scrolled past it lol. The most significant point it made about NIRP (other than the obvious), is that it dollarizes banks domiciled in negative interest rate regions. It turns the dollar into an economic wrecking ball when it eventually gets too strong. The Fed better get ready to open up those central bank swap lines again! These are ominous times we live in  

[Economy 52,845]

4 hours ago, JustinTrudeau said:

So how do you resolve this? Is this something consumers can do, or is it up to the government? I'm not an economic expert 

It's hard to come up with a single solution because multiple things are causing the high debt

 

The housing crisis is one of them. Not enough homes and surging prices and rents force people to spend a fortune on rent or borrow a lot ofr a mortgage if they want their own home

 

Wages of the bottomed 60% has not kept up with their cost of living

 

Some of it is cultural too tho I think. Ppl want the new phonee and stuff now or brand new clothes etc

 

If ur old phone still works or your clothes are still wearable and u don't have money for new stuff... Perhaps it's a bad idea to go and put that on credit

 

Some ppl are bad at knowing the difference between a need and a want tbh