Canada's real estate and consumer debt levels have risen to unsustainable levels and represent a...

Canada's real estate and consumer debt levels have risen to unsustainable levels and represent a threat to the whole economy, says TD Bank chief economist Craig Alexander. "The Bank of Canada is in a bind," he continues, arguing high debt levels make it impossible to raise rates.

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  • bob adamson
    , contributor
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    These concerns that household debt levels and inflated residential property prices are the Achilles’ heel of the Canadian economy have been a focus of debate for over a year. The significant changes in the Canadian economic environment over that period have been
    (a) a growing concern that the global market for several of Canada’s leading exports may have plateaued,
    (b) a growing appreciation that the annual debts and accumulating deficits in several Provinces need to be significantly addressed, and
    (c) a realization that ongoing efforts by the Federal Government and several of its agencies such as the Bank of Canada and CMHC to convince the Canadian consumer to become more cautious are not achieving the desired effect to a sufficient extent.


    Further, appreciating further efforts by the fiscal and monetary authorities to slow excessive consumer debt accumulation are imminent, the major Canadian banks are competing strenuously for market share by offering consumer loans and residential mortgages at ever lower rates to reasonably reliable customers. By gaining greater market share now in this manner, each bank hopes to profit as interest rates increase (i.e. lock in good customers who will have the ability to continue servicing debts as interest rates later rise)


    The better view remains that the housing (and therefore the residential mortgage) market will soften but not correct in a damaging way, that consumers will become more stressed but their default rate will not significantly increase and the monetary and fiscal authorities will achieve a restrained consumer debt market without driving the domestic economy into a significant recession. That said, the ability of the Canadian economy to deal with any downturn in the global economy or with unanticipated economic shocks has weakened over the past three years.


    Here are some recent reports and analyses from leading Canadian newspapers and the Bank of Canada.






    20 Mar 2012, 05:44 PM Reply Like
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