The Canadian Economy May Hold The Key For Barbados

debt

Image: The Globe and Mail

The question was asked by BU family member on an earlier blog, whether the Canadian banking system is as sound as the swirling perception. The strength of the Canadian banking system is of great interest to Barbadians given the heavy concentration of Canadian banks in our market.

Statistics Canada announced this week that the debt-to-income ratio of Canadians has hit a record third quarter high.   Canadians have been spending mainly on houses and cars. Statistics Canada was piercing in its analysis by citing household debt as as the biggest risk to Canada’s financial system. The proof of the pudding will come when the interest rate starts to bend upwards. How will the debt burdened Canadian respond?

The sub-prime mortgage we are told was the trigger which led to the financial meltdown in the United States. The Canadian analysts are raising concerns about the fallout of a rising interest rate interacting in a market of rising personal debt-to-income. Some may seek comfort in the number that Canada’s government debt is at a relatively low 40%; but what does the future hold?

Commonsense says that the Canadians should have learned from their neighbours to the South. This week news suggests Canadians have jumped on the bandwagon given their willingness to taken-on debt at a time when the world is experiencing a global recession. We repeat, what will happen when interest rates begin to rise; projected to be 2% in 2011?

The Barbados government should be very concerned about future developments in the Canadian economy. It is not only an important tourist market, many of our local banks  are headquartered in Canada.

3 thoughts on “The Canadian Economy May Hold The Key For Barbados


  1. What the ordinary person who took on a big mortgage because of low interest rates will do, is the same as happened in 1981-82. They will walk away from their houses and condominiums. That will be a good time for people with money to pick up a few properties.

    It has been brought to my attention that mortgage brokers are saddling young people with large 30 year mortgages. This is sad. If you cant afford a house with a 25 year or less mortgage it is economically feasible to continue renting.

    After the recession in the 80’s, the housing and construction sector was so depressed, people were offered a $3,000 incentive towards a downpayment. Being a Bajan, I grabbed it and rented out my condo. I also got an incentive when I bought the condo in 1975. Funny thing, there have been no more incentives and I am still in the same house 26 years later.

    With regards to the Canadian banks being stable, it has been brought to our attention that the government has been quieltly lending them all sorts of money. More or less under the table so as not to panic the consumers. I used to know some of the fellows at Department of Finance and the Superintendent of Financial Institutions, those guys are on the ball.


  2. This is the story Pat referred to on another blog:

    Published on Monday, Dec. 21, 2009 6:28AM EST
    Last updated on Tuesday, Dec. 22, 2009 9:08AM EST

    The housing market that led Canada out of recession is now so hot that Ottawa is talking about doing something to cool it off, a move economists say carries risks for the economy.

    Fuelled by record low interest rates, residential real estate prices have gained 20 per cent this year. And Finance Minister Jim Flaherty is now warning he will step in if prices get too high by tightening the rules for borrowers, by increasing the minimum down payment and shortening the maximum length of mortgages.

    Such a move would have to be done cautiously, economists say, because the real estate market touches all parts of the economy, and anything that caps its growth could also temper the recovery.

    Policy makers are concerned homeowners will take on more debt than they’ll be able to afford when interest rates rise again, possibly leading to a painful correction later.

    The Bank of Canada has vowed to keep lending rates low into the middle of next year, limiting its options for taking the pressure off a hot market.

    But since the federal government dictates rules around down payments and amortization periods, it can effectively dampen the housing market without increasing borrowing costs for businesses. Investor Education:

     

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