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More IMF Meddling

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The International Monetary Fund is up to its mixed messages again. This time it´s a dire warning about Canada´s future.

The IMF has recently softened its outlook on Canada, warning that “”downside risks to the outlook still dominate, including from weaker-than-expected exports resulting from competitive challenges, lower commodity prices and a more abrupt unwinding of domestic imbalances.”

How best to deal with these headwinds?

The rotation from domestic to external demand hasn’t happened yet, so the Bank of Canada should keep interest rates low and Ottawa “needs to strike the right balance” between supporting growth and driving too hard to balance the budget.”

So, to summarize: more low interest rates from the Bank of Canada, and the government shouldn´t be in too much of a rush to get the budget in better shape.

When the IMF talks of “domestic imbalances” in need of being unwound, I assume it is talking about the high levels of debt Canadians currently shoulder. In fact, the country is amongst the most heavily indebted countries in the world. After all, even the beleaguered state of California looks pretty restrained compared to the spendthrift Ontarians! By Bob Murphy´s reckoning the province has over twice as much debt as its American counterpart, and it accomplished this great feat with only a third the population.

Of course, this isn´t just an excuse to blame the government. After all, the Bank of Canada has done a fine job over the past few years of keeping interest rates pegged lower than they have been in decades. If Canadians are up to their eyeballs in debt, the BoC´s control over the interest rate is a good place to start looking for answers.

Rather than alluding to the problems that a lack of government budgetary restraint and a spendthrift citizenry are causing, why not look at the reasons why these problems exist? Trying to get the Bank of Canada to ease up on its loose monetary policy would be more helpful than trying to get millions of Canadians to stop borrowing at all-time low interest rates.

(Originally posted at Mises Canada.)

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