Bank of Canada: 2011 Is Gonna Suck!

The Bank of Canada released it's Financial Review report yesterday. It's Friday so I'm not going to pick apart the entire report. I might do that next week, so in the meantime here's a summary via the CBC.




The Bank of Canada warned Thursday that the risk of another global economic shock is rising and Canadians may not be prepared for it.

Maybe it's because the Bank of Canada has been telling Canadians for the past 15 months that everything is eh-okay and the recession is over. We have no reason to be prepared.

It said the main risk is the growing seriousness of Europe's government debt crisis. Another threat is the unwillingness of countries to take action to reduce imbalances in exports and imports between countries.

Another risk is household debt and – oh wait,

Canadians won't be spared another shock, the bank said, because during the current period of tough economic times, they have continued to take on debt.
Household debt has risen to 145 per cent of disposable income as Canadians have taken advantage of super-low interest rates to purchase homes and other consumer items on credit.

Hmmmm... I wonder who's fault that was. Weren't super-low interest rates supposed to be the cure to the financial crisis? All it did was ensure Canadians tackle on more debt.

If interest rates rise, or employment falls, many Canadians could find themselves in over their heads, the bank's review said.

Yep.

"Developments since (June) suggest that the vulnerability of the Canadian household sector has increased," the bank said. "The probability of an adverse labour market shock materializing is judged to have edged higher in recent months, owing to the downward revision … to the outlook for the global and Canadian economies."

In other words, when property prices start to fall, expect it to affect the entire economy.

Sal Guatieri, senior economist with BMO Capital Markets, said in a commentary the review suggests the bank won't resume increasing rates until the global economy picks up and Europe's credit crisis ebbs.

So never?

"However," he said, "the bank is also cognizant of the risk to household finances (and the economy) of keeping rates too low for too long. This suggests it has every intention of guiding rates back toward more normal levels at the earliest opportunity, which in our view, is likely in May."

Recession in May? If Carney doesn't pussy out like he did in June, July & September of this year (interest rise of 25 basis points? C'mon Carney grow a pair!). When rates rise to the appropriate level (reflecting the personal savings rate of Canadians) defaults will occur all over the country. There's no point in trying to delay this, the longer we wait the more debt Canadians are going to pile on.


The potential economic problems for Canada all stem from other countries, the bank said, since it still judges the domestic financial system to be relatively sound.

I judge that the Bank is stupid. I fear most Canadians are going to agree with the Bank's analyze that all our economic problems are the US' fault, or the 'currency-manipulating-Chinese' and that our financial system is sound. It's bullshit, folks.

The main problem is that China and other emerging nations continue to fix their currencies at depressed values to encourage exports and discourage consumption of foreign goods.
If that continues, the bank said, a global trade war cannot be ruled out.
"The risk of real and financial protectionism has increased," it said. "Overall, the bank judges that the risk of market turmoil resulting from global imbalances is high and has risen since June."

So the world economy is getting worse and it's all China's fault. I wish George Carlin were still alive. He'd make this scenario funny.

The Fed fixes their currency just as much as the BoC fixes ours. China's playing along too, they're just not as subtle as we are (although Bernanke's QE2 isn't exactly a secret). I don't know why the USA is so pissed off at the Chinese. If China allows their currency to rise, then Americans won't be able to afford all the “made-in-China” stuff. If China stops buying T-bonds then the US is going to find it hard to finance its debt.

China is the creditor in this “global imbalance”. I think it's about high time Canada ditches the US and those Goldman Sach terrorists that are destroying our country and cuddle up to the Asian markets. The East will win this currency war.

Heard it all before. Canada is immune to these kinds of problems.

That's the very first comment on the CBC website. I like Canadians. I am Canadian. But politically-logical economic literates most of us are not.