Textes d'opinion

With low interest and high spending, we court disaster

Savings, not consumer credit, will save us.

Halloween is just around the corner. Here’s a scary thought to put you in the mood: The Canadian economy could collapse any day.

So far, our economy has survived the financial crisis thanks to our housing bubble. The construction boom fuelled spending on building materials, appliances, furniture, electronics and more. But the bubble is deflating. And more people are losing their jobs every day.

South of the border, house prices continue to collapse. Over-indebted Americans will need years to clean up their balance sheets. As of now, 41 million of them survive on food stamps, and thousands more join their ranks every day. Canadian exporters will share their pain.

Are we prepared for a severe recession? No. Most of us are walking a financial tightrope.

Canadians are struggling under record levels of debt — 145 per cent of disposable income.

Carrying $50,000 on four cards and three lines of credit is the new normal. We’re living paycheque to paycheque. Six in 10 Canadians say they would be in trouble if their paycheques were late. Imagine if they lost their jobs.

Who’s to blame? We are, of course. But so is the Bank of Canada, which has kept interest rates artificially close to zero for about three years now. When interest rates are low, we borrow to buy a house or a second car. Save? What for, when a certificate of deposit earns just one per cent?

This was our government’s brilliant plan to get us out of recession: Entice people to shop till they drop. Two years ago, I was called crazy for advocating tax cuts instead of “stimulus” packages. “People will pay down their debt instead of spending!” Saving is wrong, I was told.

How did that work out for us, other than making us more vulnerable than ever?

The road to a real recovery goes through savings, not consumer credit. The Central Bank must stop this little game and let interest rates rise. This will hurt the economy in the short run, but it’s the path we have to follow. If we delay the natural adjustment of the economy any longer, we will end up paying a much heavier price.

We face a simple choice — just as we did two years ago: Lots of pain now, or severe suffering later. Unfortunately, it’s human nature to postpone hard choices. And in this, as in many things, politicians are all too human.

David Descôteaux est chercheur associé à l’Institut économique de Montréal.

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