Canada emerged relative unscathed from the financial crisis of 2008. Indeed, over the last six years growth has been relatively robust and to venture out in Toronto, Calgary or Vancouver right now one would think they were in the midst of the high-flying real-estate booms of the mid-2000s.
The Bank of Canada, like most central banks, responded to the turmoil of 2008 by driving interest rates to the floor and hoping for the best. This wasn´t the first time in recent history the BoC tried this tactic (having responded to the dot-com bust with a similar policy) but it was the most extreme and long-lived experiment with easy money.
To get a feel for how low and how long interest rates have been held at historically low levels, consider the above chart. Accounting for inflation, Canadian interest rates have been negative for the past four years and nearly so for 10 out of the last 13 years. This can´t end well.
With policy discussions increasingly turning to how to ensure a soft landing for a potential real-estate bust, Austrians should point out that the seeds are already sown. Years of easy money have fueled a debt-fueled culture that now needs to be repaid.
(Cross posted at Mises Canada)
