If the financial boat was sailing perfect then why would our government take such a measure which has a potential of causing havoc in next election? The answer is simple - consequences of inaction will be dire – that is what they thought.
Canadian economy is still limping. The recent business outlook survey by BoC shows optimism among the business owners but that is always the case with businesses. Consumer outlook is one of the indicators which are staying very low over years.
A gloomy personal financial situation will spell disaster when rates go up – if a borrower keeps cashing on the home while taking opportunity of the low rates.
In poor economic conditions it is important to support businesses. Businesses generally drive job growth and fuel the recovery. By keeping the interest rate rates low Government is supporting the businesses and at the same time they wanted to keep private borrowers out so that they don’t hoard more debt.
If things go haywire like it did in Spain we shall see
- Rates going up.
- Taxes going up.
- Reduced government spending.
- Cut in public sector salary.
- Spain has about 24% unemployment rate now.
- Massive sovereign debt – our grandchildren shall continue paying.
Therefore, the decision may seem harsh at this time but surely it is a prudent step. The outcome is not clear other than some speculative guesses – we shall know in due time how this will impact the economy. Housing may be a major part of our GDP but it is not the GDP itself.
We all may experience a temporary withdrawal in the housing and related industries but if the economy manages to recover then consumers will return in droves – regardless of the interest rates.
