It's actually a very delicate balance; discourage spending too much, and you choke off the recovery, but if you encourage it too much, all kinds of other problems start to present themselves. And either way, the government will likely have to assume a lot more debt to manage the immediate problem.
Household debt is now the biggest risk to the financial system, even if it is not expected to climb to levels that could cripple bank balance sheets, the central bank said Thursday in its review of the financial system. It used a “stress test'' to show that rising interest rates
between mid-2010 and mid-2012 would saddle a growing number of Canadians with unmanageable debt loads.
Mr. Carney, the Bank of Canada
governor, who has guided monetary policy throughout the crisis, is relying on consumers to help drive a recovery juiced by his historically low interest rates. Yet he is also warning borrowers and lenders not to go overboard and to think about the consequences of hefty debt in an inevitable environment of rising rates.
For what it's worth, I expect that Carney's prediction of rising interest rates in the near future will come to pass, and that in itself is reason for the average person to be cautious in this regard. I also expect that many governments will be forced to increase their indebtedness (which is already significant in some cases). Fortunately Manitoba has more wiggle room than most jurisdictions:
Premier Greg Selinger, delivering his first state of the province address on Thursday, exuded the steady-as-she-goes posture of the throne speech. Things are bad all over the world right now, Selinger said, but thankfully not quite as bad here in Manitoba.So writes Dan Lett in the Winnipeg Free Press. Given that the other three western provinces are all running deficits, we're doing pretty well... so far. I expect we'll have to run one eventually, though.
He repeated the flat-is-the-new-up mantra he used on throne-speech day. He once again gave no indication that the worst consequences of a recession -- massive spending cuts, layoffs, tax increases -- will be seen here.
Critics may find this a massive rationalization. But to be honest, Manitoba's relatively stable, no-growth performance this year, and modest growth projected for next year, is looking better and better all the time.