Friday, August 26, 2011

Debt Growing in Canada

The US during the first ten years of this century were the wastrels and debt hogs, but Canadians have quickly decided to step into American shoes.

From a Bank of Montreal economic research report, Focus, here is the current situation:

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This is not a good situation. The Bank of Canada needs to be stepping on the break to slow consumer debt growth. If and when interest rates rise, a lot of people may suddenly discover they can't carry the debt load they've acquired. This level of debt isn't prudent.

Government policy should be focused on educating Canadians that debt burdens can blow up in your face and use the Americans as the example of what bad things can happen if Canada continues down this path.

Here is the BMO economic & banking policy forecast:
On the economic front, we expect that a return to 2½%-plus (above-potential) sequential GDP growth next year and the prospective closing of the output gap before the end of 2012 should shift the Bank back into tightening gear around the middle of next year—despite persistent headwinds (e.g., a lofty loonie, global fiscal consolidation)—when U.S.
economic performance no longer acts as a domestic policy constraint (we expect U.S. growth will top 3% in 2012 H2).

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