Former Bank of Canada governor David Dodge disagrees with successor Mark Carney on debt, housing bubble

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Mark Carney is used to having the last word in all matters related to the national economy. But the Bank of Canada governor took some criticism yesterday from none other than his predecessor, David Dodge.

Dodge, who headed the Bank from 2001 to 2007, disagreed with Carney’s vision that rising consumer debt is the biggest threat facing the Canadian economy.

From the Globe:

“I don’t think it’s in trouble,” [Dodge] said, noting most consumers aren’t overexposed. In areas where employment levels remain high (such as Alberta, which Statistics Canada reports has Canada’s highest per-capita consumer debt level), debt loads are “probably not such a big deal.” And so long as interest rates don’t rise past historically average levels, it would be “a bit of a squeeze, but that’s kind of manageable.”

Dodge also took on Carney’s vision that hot housing prices in Vancouver and Toronto are signs of an overheating Canadian housing market.

From the Financial Post:

High house prices are not a serious problem in much of Canada due to low carrying costs but in Toronto and Vancouver where values have soared in the last few years it’s “a different issue,” said [Dodge].

That’s because foreign investment is a much bigger factor in these cities, something “we know much less about and we know much less about how stable that is likely to be,” Mr. Dodge said.

 




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Former Bank of Canada governor David Dodge disagrees with successor Mark Carney on debt, housing bubble

  1. “probably not such a big deal” – Well, at least Dodge qualified such an erroneous statment with “probably”, in case whoever paid him to make this ridiculous statement reneges on the deal… xdisciple.blogspot.ca

  2. Good to know there is such wide disagreement with the people who push Canada’s economic levers. Just goes to show they really have no idea what they’re doing. For what it’s worth, I think Carney is right, I think rising debt levels are a serious threat.

  3. HELOCs wil burst… Canada is in a major housing bubble, malinvestment has already spread across the nation, which is exactly why they keep lowering rates.

  4. My personal debt levels are basically maxed out.
    Am I worried? Not a bit. Why? Because they’re maxed out so that the money can be in other highly liquid investments which are earning me more than the interest charges on the debt.

    And I know I’m not the only one pursuing such a strategy. So I tend to believe Dodge when he suggests that it’s really not as bad as folks are making it out to be. When interest rates start to rise toward normal, I expect we’ll see a huge decrease in the amount of debt Canadians are holding, as they pull their money out of those investments and drop them back onto their debt. Of course, this will likely cause another stock market crash and panic among the financiers to repeat the cycle. Eventually, perhaps we’ll learn that the investors, speculators, and stock markets need to be ignored while we concentrate on the real measures of the economy — employment and poverty.

    I also agree with him that there are precisely two markets where real-estate is in a bubble, and most of the hype and worry we’re getting about the “real-estate bubble” comes from within the media bubble of Vancouver and Toronto where most of the reporters are these days.

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