Bank of Canada sounds the alarm bell
The Bank of Canada released their latest Financial System Review today. While they speak at length of the risks of European contagion, a weak global economy, low interest rates, and global imbalances, it is the section on household finances that caught my eye:
“In Canada, with the growth rate of debt outpacing that of disposable income in recent years, the proportion of households with stretched financial positions that leave them vulnerable to an adverse shock has grown significantly.”
Pretty sure I just talked about this a couple days ago.
“The risk is that a shock to economic conditions could be transmitted to the broader financial system through a deterioration in the credit quality of loans to households, which would prompt a tightening of credit conditions that could trigger a mutually reinforcing deterioration of real activity and financial stability. Developments since the June FSR suggest that the vulnerability of the Canadian household sector has increased.”
“The Bank judges that, overall, the risk of a system-wide disturbance arising from financial stress in the household sector is elevated and has edged higher since June. This vulnerability is unlikely to decline quickly, given projections of subdued growth in income.”
Under the ‘Policy Actions’ section they have this to say:
“In Canada, the deteriorating financial position of the household sector requires vigilance. When taking on debt, households bear ultimate responsibility for ensuring that they will be able to service it in the future.”
So if I read this correctly, the ‘Policy Action’ is one of passing the buck.
I’m just being a bit of a jerk here. I actually completely agree with the statement, but it doesn’t let the bank off the hook entirely. I often wonder if guys like Carney and Bernanke sit up at night and wonder how history will judge them. They have to know that an entire generation is set to reap the whirlwind that they helped sow. I wonder if statements like this aren’t meant to soothe their own conscience.