Kiyoko Fujimura

Buzzbuzzhome Corp.
December 2, 2010

There was a ton of buzz mostly over the summer about Canada’s potential housing bubble. I haven’t heard much since.

One of the main arguments for its existence was rising debt levels in Canada. And it’s true, Canadians have taken on more debt. Record-low interest rates have succeeded in tempting Canadians to borrow. And, by the way, that’s the whole point of the Bank of Canada maintaining low rates– to encourage people to borrow.

So it’s not a big problem that’s going to send the whole country running to the hills. First of all, because that’s the whole point. Second of all, because Canadians are saving simultaneously. So it balances out in the end.

According to Moneyville:

The Canadian savings rate rose to a nine-year high of 6.1 per cent in the spring, but settled down to 3.3 per cent in the fall of this year. Over the 12 months, the savings rate has averaged at about 4 per cent – nearly double the record low in 2005.

It sounds to me like some economists out there are just looking for trouble where there isn’t any. Sure, I wrote a post about Vancouver’s too-good-to-be-true housing market but that’s just one city. The Bank of Canada wanted people to spend money to stimulate the economy post-recession. The best way to encourage people to spend is to encourage them to borrow. So they lowered interest rates– and people borrowed money. And spent it. But, luckily for everyone involved, Canadians had the foresight to increase savings too.

Prudent, cautious Canada. How reasonable you are.

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