Canada’s Financial System At Growing Risk Of Economic Shocks


Stephen Poloz – governor of Canada’s Central Bank – is raising further concerns about the Canadian Financial System, as growing debt and an out-of-control housing market increase our vulnerability.

“Highly indebted households have less flexibility to deal with sudden changes in their income,” said a report by Poloz and the Bank of Canada.

“As the number of these households grows, it is more likely that adverse economic shocks to households would significantly affect the economy and the financial system,” the report added.

Poloz is using the same careful language as most central bank governors, making sure he balances concerns with some positive messaging to prevent a market decline. He is trying to show some positivity by saying that the economy is doing alright outside the housing market and growing debt.

Of course, Poloz has to say that, otherwise he could trigger a panicked sell-off in the markets.

Yet, there appears to be growing concern around the world regarding our economy.

The OECD has issued warnings about our housing market, and both Moody’s and Standard & Poor’s have issued debt rating downgrades for Canadian Financial institutions as the perception of risk grows.

According to the CP, Poloz explained that the Bank of Canada is looking at two potential serious shocks to the economy:

  • A reduction in foreign demand would trigger a “severe” recession in Canada. This recession would be made worse by the high level of vulnerability of Canadian households.
  • The other serious concern is a big correction in the Toronto and/or Vancouver housing markets. The damage from this would extend beyond the localized market, and would infect the entire Canadian financial system and economy.

Those two potential shocks show the serious vulnerability at the core of our economy. We are massively dependent on foreign trade, and much of our local resources are being strangled. The rising burden of taxes, combined with extremely weak rules on foreign investment, has skewed our housing market and contributed to the weakening of family finances through increasing debt.

Canada clearly needs a new economic approach that is focused on strengthening our domestic economy by building up our economy and resources, and reducing the burden of taxes to help strengthen household finances.

At the same time, we need to get smart when it comes to foreign investment. We can’t simply let the richest of the rich around the world buy up our real estate and push Canadians out of the market.

It has become obvious that until we have leaders focused first and foremost on serving the Canadian people rather than elite interests, our economy will become more and more vulnerable.

Spencer Fernando 

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