The economist who says Canada is headed for a credit crisis

Professor Steve Keen, of Kingston University in Greater London’s western suburbs, has made a name for himself as one of economics’ leading contrarian voices. He has criticized the idea that no one could have seen the 2008 global financial crisis coming as “balderdash“. He was one of the relatively few economists to favour Britain leaving the European Union; and perhaps less controversially, he sees the common European currency as “destroying Europe” and as something which “should never have started in the first place.

But Keen foresees problems in more places than just Europe. In an interview broadcast in late September on RT, the Russian government’s foray into 24-hour cable TV news, Keen discussed the rising risk of a debt crisis in China caused by the over-construction of new housing and office space. As he sees it, private debt and demand for credit has reached hazardous levels:

“The potential trigger is simply the level of private debt. Anything above 1.5 times GDP is enough to put you in the range where changes in credit have a large impact on your demand. Secondly, if your credit demand exceeds 10 percent of GDP, you’re in danger territory again, because, simply, stabilization of that rate of growth of credit, so that it grows at the same rate of GDP, will mean a fall in total demand in those economies.”

The more disturbing part of the interview comes when Keen sets his sights firmly on Canada:

“The most vulnerable economy apart from China on that front appears to be, of all things, Ireland — again! They’ve got themselves back in the situation; but that may involve their dodgy accounting and their dodgy tax records. But certainly Canada. Canada is the western developed economy that I think is most exposed to a credit crisis, and indeed using a different metric, that’s the country that the BIS [the Bank for International Settlements; a Swiss-based banking institution for the world’s central banks] identifies as the most likely one to face a credit crunch.”

Indeed, news watchers might have noticed that just this past week the Canada Mortgage and Housing Corporation (CMHC) issued its first-ever “red warning” for the Canadian housing market, noting that “high levels of indebtedness coupled with elevated house prices are often followed by economic contractions . . . The conditions we now observe in Canada concern us.”

One glimmer of hope that Keen sees for Canada is that the federal government’s deficit spending might turn out to be a good thing, by diluting the impact of any shock that comes along. Yet he also sees some risk from the possibility that those deficits might come under attack for political reasons:

“What worries me of course is when that credit crunch occurs, the political opponents to Trudeau will blame it on his deficit spending. But his deficit spending is one thing that’s attenuating how bad that shock is going to be. So, Canada definitely, Australia, Sweden, Norway, possibly Switzerland, there’s about 17 countries . . . but those are the major ones [facing a problem].”

Advertisements

About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: