Mark Carney recently announced that interest rates would remain low for the next couple of years.
Sounds good, but here is what they do not tell you about.
Wages have remained flat for the past several decades.
House prices have inflated enormously over the same time period
With the result that the average single-wage earner can no longer afford a house, and two incomes are required in order to do that.
Our economy is a consumer-based economy, for both consumer products and the commodities that they are based on.
To maintain a growing consumer economy when wages remain flat, interest rates have to remain low. That encourages consumer spending for goods via easy credit debt and it encourages higher house prices through easy access to cheap mortgages.
The housing market is also used to boost the economy, through employment, but mainly through the creation of money (mortgages) and the application of much of that money to further spending/consumption.
To maintain the housing bubble that this creates, it becomes necessary to keep interest rates low.
Which also encourages more credit debt overall.
That is the debt trap that Canada now faces.
If interest rates are raised, mortgages become unsupportable at current values, and therefore the bubble would burst.
Also, if interest rates increase, consumer credit debt becomes unsupportable (as it really already is with a 1.64:1 ratio – Stats Canada, Dec. 13, 2012).
Families then face crippling debts on low-wage incomes.
Further, banks are insured by the CMHC, so when the bubble bursts, they are fine and the taxpayer is left holding on to the bank’s loan debt.
The consumer does not receive the money, the banks do.
Corporations have forced wages low, with the assistance of the government, by destroying/weakening unions that support stronger wages, and by using free trade as an excuse to use cheaper unprotected labour overseas.
The one per cent do not care, as most of their wealth and income is not derived from wages but from protected financial investments.
Large corporations do not create much work (small business does most of that).
The availability of well-paying career work has been hit by both the outsourcing of labour and union cutting, and the increase in computer/machine productivity.
There are solutions, but the debt trap leaves the consuming public unprotected if there are no real high wage jobs available.
All the government talk about private sector job creation is simply a smoke screen to hide the real reason behind the economic downturn: their own unsustainable financial policies that harvest the wealth for the already wealthy and leave the debt to the majority of taxpayers.
It is no wonder that Mark Carney is heading to England for a new posting as the head of the Bank of England. He wants to have his hands clean if the Canadian economy falters along with the global economy.
Jim Miles
Vernon
