America has had its housing market ‘correction,’ ours is yet to come
Federal Reserve Chair Janet Yellen at the Economics Club of Washington earlier this month. She is widely expected to raise the Feds main interest rate today, for the first time in nine years. (Susan Walsh/Associated Press)
Let’s look at the unfortunate facts for a moment.
The U.S. Federal Reserve appears ready to raise interest rates slightly today, because it believes an American recovery is well underway. The U.S. economy is now at what economists would call full employment — about five per cent.
Good for them. An American recovery cannot be anything but good for Canada.
And yet.
The Canadian economy is weak enough that Bank of Canada governor Stephen Poloz is now actually talking about the possibility of going the other way, all the way to negative rates, which means you’d be better off stuffing cash into a mattress.
That would penalize savers and push people to take risks in search of return. (It also means an even lower Canadian dollar; what a difference a few years make.)
- Poloz says housing debt threatens entire system
- Average house price rose 10% to $456,186 in November
- Oil pops higher, stocks rally ahead of expected Fed rate increase
The unemployment rate here is now 7.1 per cent.
Americans, having been terrified out of their wastrel-grasshopper lifestyle back in 2008, when it looked as though their financial world was coming to an end, have been trimming back debt and actually saving.
As a result, American household finances haven’t been in this good shape for many years.
But Canadians, addicted to the cocaine of nearly free money, keep setting records for household debt. The average Canadian household now owes $1.64 for every dollar of income.
Canadian debt, to put it plainly, is increasing a lot faster than Canadian incomes.
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