Bank of Canada has “basically no room to move”
“The Canadian government has no plans for now to clamp down on the housing market even though prices are rising again, Finance Minister Jim Flaherty said on Monday, but he pledged to investigate whether the price uptick looks to be more than temporary.“Flaherty said that it would be his department’s responsibility to act on housing prices since the Bank of Canada has “basically no room to move,” but added: “I have no intention of interfering in the market for the time being.””
Flaherty makes the statement that the Bank of Canada has “basically no room to move,” . What exactly does he mean by that?
“The Bank of Canada’s surprising signal last week that it will not raise interest rates any time soon will lift the housing market and give indebted households breathing room, but it leaves many apprehensive there will be a hard reckoning.“
So what Flaherty is saying is that the Bank of Canada cannot raise interest rates because of indebted households carrying high debt loads – raising interest rates would result in those households going bankrupt.
“Western economies are caught in a low-interest rate trap that is proving a difficult problem to fix.
“Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty go on about it, but they’ve caused it, moving in lockstep with central bankers elsewhere.”
A low-interest rate trap occurs when a Central bank sets interest rates too low for too long and the economy begins to depend on the low-interest rates, preventing the Central bank from raising them again. The problem is that nothing lasts forever and, if the Bank of Canada doesn’t solve this, eventually there will be a financial crisis which will force a reckoning. Don’t wait until it happens, get out of debt and get an emergency fund set aside.