Paul Krugman, the Nobel-laureate economist and New York Times columnist, sounded a cautious, yet somewhat guardedly-optimistic, note when addressing the Canadian Bar Association on the state of Canada’s economy, its banking and financial regulations, and the effect of global economics on Canadian financial, mortgage and real-estate markets.
Praising the regulation of Canada’s banking and financial system, Mr. Krugman, a decided economic bear, warned that “Canada’s shining bank regulatory system cannot be counted on to shield the country from an impending economic buffeting,” according to reports in the Globe and Mail.
“Canadian housing prices did not take off in the mid-2000s the way they did in the United States and Europe,” according to Mr. Krugman, “but neither did they come down sharply during the recession, as they did elsewhere in the Western world.” Accordingly, he warns that while the deflated U.S. real estate market has “a green light,” Canada’s markets are “verging on red.” He cautions that low savings rate, relatively high household debt loads and concerns about our real estate market are “not scary, but they are still disturbing.”
Mr. Krugman warned that global interest rates are now so low that governments will soon be unable to lower them further to stimulate borrowing and spending – a traditional monetary solution to kick-start stagnant, under-performing economies. Yet, according to the Globe, Mr. Krugman “heaped praise on Canada’s tight system of regulating banks and consumer debt, as well as its generous social safety net for insulating Canada from the current recession” in the U.S. and many other world economies.
As a result, “Canada is an example of the virtues of a relatively traditional approach to regulation,” according to Mr. Krugman, and, “is also in a position to maintain itself competitively on costs; [and] to pursue a relatively independent monetary and fiscal policy, even though it sits next door to a much, much larger economy that’s in trouble.”
Overall, this seems like a cautious, yet somewhat optimistic, prognosis of the state of Canada’s economic, financial, real estate and mortgage markets, from one of the world’s most respected – if, not always, influential – economic analysts.
