Thursday, June 21, 2007

When Politics Trumps Economics

Most of the time I leave politics out of the mix of stories on this blog primarily because it's such a divisive subject. But some media yesterday and today has got me thinking that we can't ignore it completely like we are wont to do at times.

Yesterday, this story, out of Meech Lake (oh, the irony of political failures there) has most provinces calling for Dodge to leave interest rates alone out of fear that increasing the dollar's value will hurt exports. And they're right. But on the flip side, touching the interest rate will slow-down the crazy spending Westerners (who coincidentally don't buy a whole lot from the East anymore) who are responsible for much of the RE run-up and other inflationary pressures.

H/T to Greg for this timely link where C.H. Smith really gets into the craziness that is government controlled economics. Scroll down a ways to see just how big the household debt has become in the US. Ah, yes, but we're not them. Or are we?
Between 1982 and 2001, per capita debt doubled, stemming from dramatic increases in both mortgage and consumer debt.

Other studies show that increasing financial wealth, particularly home equity, stimulates household spending. So the recent run-up in real estate values in many areas of the country may have helped to loosen the purse strings of homeowners. (Ya think?)
Eastern Canada has truly become a diesel engine in the Canadian economy: slow and steady. The West is like an F1 car being driven by Lewis Hamilton: fast, loose and nothing to lose. Until we hit a wall. Inflation and affordability are macro economic factors that should not be ignored. 1981 taught us that. Does anyone remember?

1 comment:

greg said...

If per capita debt doubled in Canada from 82-2000, what do you think it has done from 2001-2007?

Check out Charles' chart of US Household debt, rinse and repeat...