To hear George Osborne tell it when he announced his selection of Mark Carney as the next governor of the Bank of England, Canada is doing very well. It "is acknowledged to have weathered the economic storm better than any other major western economy, bank bailouts have been avoided, sustained growth has returned," Osborne told the House of Commons – all of which is true. And if you listen to another Conservative government here in Canada, that's a very familiar refrain – one it broadcasts happily both internationally and domestically. Canada has "the best banking system" and the "highest credit rating in the world," Canada's finance minister Jim Flaherty reminds the opposition, contrasting Canada's current economic stability with what the government warns is a plan from the New Democrats to one day impose carbon taxes that, they say, would cripple the economy.
So confident is it of Canada's current situation, our government even likes to lecture the Europeans from time to time. "If some of the European countries could achieve the balance that Canada has, it would be ideal for those countries," Flaherty said in November. "We've been pressing Europe for a long time, the eurozone countries, and sometimes we've created a chill in the room by not going along with everybody."
Given all that, it's probably time to let you in on a secret. While it's true that as a nation, Canada learned some sound policy lessons from its own financial and economic meltdowns in the latter decades of the 20th century, a lot of us are now personally up to our eyeballs. In fact, when it comes to mortgage debt, we're not doing much better than Spain.
Canadian "household debt as a percentage of disposable income has risen by almost 60 percentage points to 165% today," Tiff Macklem, the senior deputy governor of the Bank of Canada told an audience at Queen's University. Here's the kicker: "The bulk of this rise in debt – 66%, or $636 bn – has been in the form of mortgage debt, putting Canadians in an uncomfortable neighbourhood between Spain and the United States in the ranking of household mortgage debt," Macklem said. In fact, when adjusted for international comparability, the ratio of household debt to disposable income in Canada is now higher than it is in Britain or the US.
Macklem's concerns echo those Carney has also been making for the better part of a year. As housing prices drop alongside sales across the country, the threat of a housing bubble burst and the subsequent job losses were repeated in media accounts, though often via somewhat breathless images of a dystopian futurescape of a total crash. Even if that crash is more just a bumpy landing, the worry remains: was all we managed just a simple delay of the inevitable? Is Canada next? Will all that blustering about how good we are at financial management – the kind of thing that turns attention to your central banker – come back to bite us?
"Why have we done so well?" Macklem asked his audience. "It would be a conceit to think it is because we're smarter, better educated, more inventive or harder working." Our major financial crises were earlier and forced the government to rethink public policy. But as for the public itself? Thanks in part to low interest rates, it's generally been our policy to become indebted. Just like everyone else in the world.
The only place with anything positive to report on the housing front is in Calgary, the white-collar heart of the energy resource boom. Coincidentally, this is where it will get a bit more uncomfortable for our Conservative government, given its recent struggles to fight off an image the opposition and most of the international left is most eager to tag to it – that is, that it's a mob of uncaring, Kyoto accord-abandoning, environmental regulation-destroying slaves to nature-be-damned growth in all forms.
As it turns out, even if the housing market's net deficit is somehow eliminated, the Canadian economy could still need a boost. And it might be those commodities that could ultimately help save us, as long as we're ready to export them somewhere other than the US, where our share of the market is steadily decreasing. That is likely to mean increasing output, and turning to China and India for a new customer base – something the opposition and global environmental activists generally dislike, as it would probably mean laying down an enormously contentious pipeline through, say, British Columbia. Or maybe two, if things get bad enough. Which they might.
Canada's dirty economic secret: we're as indebted as the rest of you
The country touted as an example to Europe isn't in great shape. When it comes to mortgage debt, we're little better than Spain
So confident is it of Canada's current situation, our government even likes to lecture the Europeans from time to time. "If some of the European countries could achieve the balance that Canada has, it would be ideal for those countries," Flaherty said in November. "We've been pressing Europe for a long time, the eurozone countries, and sometimes we've created a chill in the room by not going along with everybody."
Given all that, it's probably time to let you in on a secret. While it's true that as a nation, Canada learned some sound policy lessons from its own financial and economic meltdowns in the latter decades of the 20th century, a lot of us are now personally up to our eyeballs. In fact, when it comes to mortgage debt, we're not doing much better than Spain.
Canadian "household debt as a percentage of disposable income has risen by almost 60 percentage points to 165% today," Tiff Macklem, the senior deputy governor of the Bank of Canada told an audience at Queen's University. Here's the kicker: "The bulk of this rise in debt – 66%, or $636 bn – has been in the form of mortgage debt, putting Canadians in an uncomfortable neighbourhood between Spain and the United States in the ranking of household mortgage debt," Macklem said. In fact, when adjusted for international comparability, the ratio of household debt to disposable income in Canada is now higher than it is in Britain or the US.
Macklem's concerns echo those Carney has also been making for the better part of a year. As housing prices drop alongside sales across the country, the threat of a housing bubble burst and the subsequent job losses were repeated in media accounts, though often via somewhat breathless images of a dystopian futurescape of a total crash. Even if that crash is more just a bumpy landing, the worry remains: was all we managed just a simple delay of the inevitable? Is Canada next? Will all that blustering about how good we are at financial management – the kind of thing that turns attention to your central banker – come back to bite us?
"Why have we done so well?" Macklem asked his audience. "It would be a conceit to think it is because we're smarter, better educated, more inventive or harder working." Our major financial crises were earlier and forced the government to rethink public policy. But as for the public itself? Thanks in part to low interest rates, it's generally been our policy to become indebted. Just like everyone else in the world.
The only place with anything positive to report on the housing front is in Calgary, the white-collar heart of the energy resource boom. Coincidentally, this is where it will get a bit more uncomfortable for our Conservative government, given its recent struggles to fight off an image the opposition and most of the international left is most eager to tag to it – that is, that it's a mob of uncaring, Kyoto accord-abandoning, environmental regulation-destroying slaves to nature-be-damned growth in all forms.
As it turns out, even if the housing market's net deficit is somehow eliminated, the Canadian economy could still need a boost. And it might be those commodities that could ultimately help save us, as long as we're ready to export them somewhere other than the US, where our share of the market is steadily decreasing. That is likely to mean increasing output, and turning to China and India for a new customer base – something the opposition and global environmental activists generally dislike, as it would probably mean laying down an enormously contentious pipeline through, say, British Columbia. Or maybe two, if things get bad enough. Which they might.
Canada's dirty economic secret: we're as indebted as the rest of you
The country touted as an example to Europe isn't in great shape. When it comes to mortgage debt, we're little better than Spain
Comment