Renowned economist Paul Krugman is worried about Canada’s economy.
The Nobel Prize winner and New York Times columnist wrote in a blog post Saturday that Canada “ought to be quite vulnerable to a big deleveraging shock despite its boring banks.”
By “ought,” he means he’s not quite sure. But he sees warning signs in the fact that a very large spread has developed between U.S. and Canadian house prices, and Canadian household debt levels are reaching levels seen in the U.S. just before that country’s own “deleveraging shock.”
House Prices, U.S. vs. Canada
He sees Canada as a “test case” for theories as to why the U.S. has been struggling for so long to come out of its economic slump.
One such theory -- which Krugman himself gives credence to -- says that it wasn’t the bank crisis that caused the slump, but rather the “overhang of private debt” from the country’s housing bubble.
If that’s the case, Krugman argues, then the fact that Canada’s banks didn’t get involved with the “toxic” mortgage-backed assets that sank U.S. banks won’t stop the country from experiencing the same sort of economic stagnation and high unemployment that has plagued the U.S. for the past half decade.
But for that to happen, the housing market would have to actually crash -- and, as Krugman notes, the market isn’t crashing.
“People have been [predicting a crash] for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too,” he wrote.
Many economists argue that for a bubble to pop, there needs to be an “event” -- such as an economic slowdown, or a bank crisis -- and that no such event is on the horizon for Canada’s economy.
Krugman is not alone in predicting trouble for Canada’s economy. Robert Shiller, the real estate expert whose name is on a U.S. house price index, said he is worried Canada is experiencing a “slow-motion version” of the U.S.’s housing crash.
The Economist and the OECD have both recently declared Canada to have one of the most overvalued housing markets in the developed world, and at least one U.S. hedge fund manager is staking all his clients’ money on a Canadian housing downturn.
But there are plenty who argue the opposite. David Rosenberg, a former Merrill Lynch economist credited with predicting the U.S. financial crisis, said last week those betting against Canada are taking a big risk.
He pointed to the fact that the fundamentals of Canada’s housing market have turned positive recently, after slumping for many months, and that Canada’s bank profits are holding up despite predictions for nearly a year they would turn south.
And there are many who continue to argue it was fraudulent business practices and poor regulation in the U.S. that caused the collapse.
“A lot of the problems that generated the crisis in the U.S., they just never happened in Canada,” University of Toronto finance professor Laurence Booth told the Financial Post. The people betting against the Canadian banks “have no idea of the difference between the Canadian and U.S. housing markets.”
Earlier on HuffPost:
FoxTrax Or That Stupid Glowing Puck
FoxTrax Or That Stupid Glowing Puck
When Fox won a contract to broadcast the NHL in 1994 it <a href="http://en.wikipedia.org/wiki/FoxTrax" target="_blank">decided people needed the puck to glow in order to be seen</a>. This was stupid. As Canadians know you do not need laser to see a puck. You just need eyes. The stupidity of Fox's move was immortalized in a Molson Canadian commercial. FoxTrax was retired in 1998, around the time Fox gave up on hockey.
Saying No To Joining America
Saying No To Joining America
<a href="http://blog.constitutioncenter.org/2013/03/when-canada-was-invited-to-join-the-united-states/" target="_blank">America's less-famous first Constitution included an invitation to Canada to join the U.S.</a> It remained open from 1781 until the U.S. Constitution everyone knows was finalized in 1789. A <a href="http://www.annexation.ca/reports/2004%20Leger%20Marketing%20-%20Canada%20US%20Relations.pdf" target="_blank">2004 poll from Leger marketing</a> found just 7 per cent of Canadians were even vaguely interested in merging with the U.S. So obviously, Canada made the right call. America didn't learn its lesson. For proof, see the next slide.
While many historians have labelled the conflict a draw, we're not sure how <a href="http://en.wikipedia.org/wiki/War_of_1812" target="_blank">repelling a foreign invader and then burning its national monuments qualifies</a>. And it wasn't all because of luck or American strategic incompetence, although that played a part. Canada also outsmarted the U.S. on a number of occasions. Take the <a href="http://en.wikipedia.org/wiki/Siege_of_Detroit" target="_blank">fall of Detroit</a>, when a much smaller force of British soldiers, Canadian militia and First Nations fighters convinced American General William Hull to stand down by using subterfuge. British General Sir Isaac Brock's forces allowed fake letters to fall into American hands. The missives suggested the size of their aboriginal force was much larger than it really was. Militiamen were dressed in the uniforms of British regulars. Encamped troops built more fires than were needed and troops marched in and out of sight of the U.S. fort to create the illusion of a larger army. The result? Hull surrendered more or less without a fight. Brains over brawn for the win.
America has maintained a trade blockade of Cuba since the missile crisis of 1962. Canada, not so much. In fact, former Cuban leader Fidel Castro was enough of a friend of former prime minister Pierre Trudeau to show up at his funeral in 2000. While America may have had good reason for maintaining sanctions against Cuba during the Cold War, the fall of the Soviet Union has raised serious doubts about the wisdom of the ongoing policy. While a series of U.S. administrations have avoided angering Cuban expats in the electorally-important state of Florida by maintaining the blockade, they have also passed up trade opportunities that could greatly benefit both nations. On a side note, it's hard to imagine Canadian literary legend Mordecai Richler without his beloved Romeo y Julieta cigars. If Canada had joined the blockade it's possible nobody would have ever heard of Duddy Kravitz. Did we mention vacations in Cuba are cheap and beautiful? America, you're missing out.
While America has been involved in many dubious conflicts over its history, Vietnam is widely considered the nation's greatest military blunder. Despite being closely allied with the U.S., <a href="http://en.wikipedia.org/wiki/Canada_and_the_Vietnam_War#cite_note-7" target="_blank">Canada managed to stay out of the conflict</a>. In 1965, prime minister Lester B. Pearson even called for a cessation of bombing in North Vietnam, a move which is said to have angered president Lyndon B. Johnson. Nevertheless, Canada-U.S. relations were never seriously damaged over Vietnam. The period is an enduring example of how two allied nations can disagree and still remain friends.
Ten years after the U.S. invaded Iraq, it has become clear the war was something of a mistake. The rationale to invade was the presence of weapons of mass destruction that didn't exist and the management of the country after the invasion led to bloody sectarian warfare. Canada, despite heavy pressure from the U.S. and a commitment to Afghanistan, stayed out of the conflict.
The Housing Crash
The Housing Crash
<a href="http://www.huffingtonpost.ca/2013/01/11/house-prices-canada-overvalued_n_2457058.html" target="_blank">While there are signs Canada is headed for a housing crash of its own </a>in the second decade of the 21st century, it did manage to avoid the crisis of the late 2000s that brought America's economy to the brink of total collapse. Canada avoided many of the questionable lending practices that saw low-income families take on homes they simply couldn't afford. But while Canada avoided the out-of-control leverage that characterized America in the 2000s, Canadians may not have learned the larger lesson. Since the financial collapse, international and domestic observers have grown increasingly concerned Canada is headed for its own housing meltdown. The federal government has made it more difficult to get mortgages with long amortizations and discouraged banks from lending at ever lower rates in an attempt to cool markets. Whether these moves will be enough to allow Canadians to continue to boast of their financial crash superiority remains to be seen.
The Whole Debt Thing
The Whole Debt Thing
<a href="http://www.usdebtclock.org/" target="_blank">America's national debt</a> stands at roughly $16 trillion and climbing. <a href="http://www.debtclock.ca/" target="_blank">Canada's national debt</a> is roughly $600 billion. Even after adjusting for the U.S. population being nearly 10 times that of Canada, it's clear which nation is doing a better job at keeping debt under control. The situation isn't an accident, but a result of policy. In this case, smart policy from Canada and a near total lack of policy from the U.S. In the mid-90s, Canada significantly lowered its debt-to-GDP ratio with stiff cuts. While the cuts slowed economic growth to a crawl, they were seen as necessary by the Liberal government of the period after Canada's credit rating was downgraded by Standard & Poor's and Moody's. While the drop in growth lowered tax revenue, nearly to the point of making the cuts revenue neutral, they did shift Canada's economic balance away from the public sector and toward private business, a change credited with fuelling Canada's subsequent economic success. The U.S., on the other hand, took the surpluses of the Clinton era and turned them into massive deficits during the 2000s. President George W. Bush's massive tax cuts, two wars and the financial crisis have left America with a dire financial situation its political system seems unable to address. America's status as the global reserve currency has kept its debt from becoming a lending issue, but almost everyone in the political class agrees something must be done. The bipartisan Simpson-Bowles report commissioned by President Barack Obama in 2010 called for a combination of revenue increases and cuts to alter America's debt curve. Since then, most Republicans have steadfastly refused to trade revenue increases for cuts, arguing that cuts to spending and taxes are the way to kick-start the economy. Maybe checks and balances aren't so great after all, eh? Maybe the Founding Fathers should have given the Westminster system and majority governments a shot.
It's almost universally recognized that campaign finance has become one of the most detestable aspects of America's political system. Congressmen, senators and presidential hopefuls now spend absurd amounts of time raising cash. The <a href="http://www.huffingtonpost.com/2013/01/08/call-time-congressional-fundraising_n_2427291.html" target="_blank">situation has gotten so out of hand</a> that phone-banks are now available just steps off federal property in Washington D.C. so politicians can easily make calls to donors without violating federal regulations. The <a href="http://www.huffingtonpost.co.uk/gareth-edmundson/us-elections-seven-billion-dollar-scandal_b_1655425.html" target="_blank">cost of the 2012 federal election campaign has been estimated at roughly $7 billion</a>. But even calling it the 2012 campaign is a bit of a misnomer. Campaigning for president never really ends now. In contrast, <a href="http://www.huffingtonpost.ca/2011/10/04/ending-per-vote-party-subsidy-canada_n_995143.html" target="_blank">Canada passed laws banning donations from corporations and unions and setting a low cap on personal donations</a> in the mid 2000s. The Liberal and Conservative parties were both part of the legislative effort. Campaigns are much shorter than in the United States and there are fewer allegations of corporate lobbying. Which way of doing things sounds smarter to you?
Next: 25 Reasons Why Canada Rocks
There are some snacks that define a nation, but not many that taste good to only those who live there. What do we love? The fact they leave our fingers dyed red after we've had a whole bag. Ketchup has never tasted so salty, non-tomatoey and outright good. Our U.S. friends may go nutty over Doritos, but we love our ketchup chips.
Les Stroud aka 'Survivorman'
Many Canadians will point to the fact that Superman has a strong connection to the Great White North, but we'd like to reintroduce you to the real thing. <a href="http://www.lesstroud.ca" target="_hplink">'Survivorman</a>', while it was on in the late 2000s, showcased Les Stroud, a gritty Canadian who shot his own show in snow, sleet, heat and rain with nothing but random household objects and a trusty knife. We like to think that in a country that's increasingly urban, the outback is still our domain. Les, he's the best of us.
The Greatest Scream On Film
It was the scream heard around the world, and has been imitated - although never duplicated - several times since. <a href="http://www.williamshatner.com/" target="_hplink">William Shatner</a>, who in his own right is a great Canadian, uttered the famous scream '<a href="http://khaaan.com/" target="_hplink">Khaaaaannnnnnnnnnnn!</a>' in a scene during 1982's 'Star Trek II: The Wrath of Khan'. Was it the close up on Shatner's face or the fact he shook while he screamed that made it so powerful? Thirty years later, filmmakers and actors are still trying to outdo Shatner. But some things just can't be beat.
In warm weather, it will cool you down. If you're hungover, it's the magic antidote. <a href="http://en.wikipedia.org/wiki/Caesar_(cocktail)" target="_hplink">The Caesar</a>, Canada's favourite breakfast, lunch and evening cocktail adds a spicy twist to the Bloody Mary. Canadians are so particular about how it tastes -- with Clamato, not tomato juice -- that many don't even bother ordering it in the U.S. out of fear of disappointment. Served with celery, a lime and, if you're lucky, a fat dill pickle, it's the perfect cocktail. Who knew clam juice could add that kind of magic to a drink? (Photo Shutterstock)
Overall, Americans can save 24 per cent if they buy their drugs from online Canadian pharmacies versus filling their prescriptions at home, according to a <a href="http://www.annals.org/content/143/6/397.abstract" target="_hplink">study published in the Annals of Internal Medicine.</a> The study sought to find out why so many U.S. citizens have been taking advantage of the deep discounts north of the border, and the results showed dramatic savings across the board. "Forty-one of the 44 brand-name medications examined were less expensive in Canada." Canucks are proud of their health-care system and easier access -- in this case financially -- to pharmaceuticals. (Photo Alamy)
Our Ties To The Monarchy
The debate on whether we should cut ties to the monarchy was <a href="http://www.theglobeandmail.com/commentary/why-the-monarchy-sigh-still-survives-in-canada/article4181939/" target="_hplink">all but quashed last year</a> after the outpouring of pomp and pageantry -- in Canada -- around the royal wedding. Canadians embraced the nuptials as if Prince William was their own and turned out in droves to see the newlyweds during <a href="http://www.huffingtonpost.ca/news/royal-visit-canada-2011" target="_hplink">their cross-country tour last July.</a> From trying to get Pippa's butt to putting in their two cents on whether Prince Charles deserves the throne, Canadians love their Queen and all of the gossip that goes with her. (Photo Rex Features)
When it comes to food, Canadians concede there's far more selection in the U.S. but we're fiercely proud of the candy bars that can only be found here. <a href="http://en.wikipedia.org/wiki/Coffee_Crisp" target="_hplink">Coffee Crisp</a> is a great example. Consisting of a crunchy wafer, milk chocolate coating and slightest hint of coffee flavouring, the chocolate bar is true to its marketing slogan of making 'a nice light snack' and is adored by all moms and seniors. Rumour has it they've been spotted in a few U.S. border town convenience stores. We want proof!
Better View At Niagara Falls
Undoubtedly one of North America's natural wonders, the power and beauty of Niagara Falls never ceases to amaze, whether it's your first trip or 100th. Luckily for Canucks, the <a href="http://www.world-of-waterfalls.com/eastern-us-niagara-falls-which-side-is-better.html" target="_hplink">best place to view the falls is on the 'Canadian side'. </a>That's right, busloads of tourists from around the world flood the observation areas near the falls in Ontario every day to snap the perfect picture for their Facebook profile. Do Americans bother to cross the border for the better view? You betcha. Just look out for the person using 'eh' at awkward times. (Photo Shutterstock)
We Love Seeing Our World
About 56 per cent of Canadians have a passport while just 37 per cent of Americans do. While the majority of Canadians haven't been to countries like Azerbaijan, they do take pride in seeing the world and it's difficult to not run into a Canadian while travelling abroad. A story by TechCrunch claims <a href="http://techcrunch.com/2011/07/22/more-americans-are-on-facebook-than-have-a-passport/" target="_hplink">more Americans have a Facebook page than a passport.</a> Perhaps they prefer to view the travel photos of their friends online than to actually see sights for themselves... (Photo CP)
Limits To Election Spending
Canada limits corporate influence on our electoral process via spending limits on political donations and third-party advertising. The 2010 decision by the U.S. Supreme Court to strike down <a href="http://www.huffingtonpost.com/2010/01/21/supreme-court-rolls-back_n_431227.html" target="_hplink">similar campaign finance laws in that country</a> -- on grounds they violate the free-speech right of corporations -- poses a serious threat to democracy and the integrity of future elections in America. (AFP/Getty Images)
Hockey In Middle Earth
The soul of hockey isn't at the Hockey Hall Of Fame. Or the Air Canada Centre (sorry Leafs fans). It's in places like Windy Arm, Yukon where you can skate on ice clearer than your bedroom mirror in a setting that's straight out of Tolkien's Middle Earth.
There are few brands in Canada as reliable as President's Choice. Mr. Christie thinks he makes good cookies but nothing tops<a href="http://reviews.presidentschoice.ca/6584/F14934/reviews.htm" target="_hplink"> the Decadent</a>, the brand's answer to Chips Ahoy. Kraft Dinner, in its familiar blue box, pales in comparison to <a href="http://www.presidentschoice.ca/LCLOnline/products.jsp?type=details&sortOrder=byRate&productId=4745" target="_hplink">PC's White Cheddar Mac & Cheese</a>. It also doesn't hurt that nerdily-handsome Galen Weston (hearthrob of Canadian suburban housewives everywhere) is the pitchman for this iconic line of Canadian products. Why yes, Mr. Weston, I'd like some more <a href="http://reviews.presidentschoice.ca/6584/Fprod1410011/reviews.htm" target="_hplink">Memories of Morocco Sweet And Spicy Sauce</a>...
Ours might be smaller and fewer in number but Canadian cities consistently rank above American cities on livability.<a href="http://www.huffingtonpost.ca/2011/11/30/mercer-quality-of-living-cities-canada_n_1120615.html" target="_hplink"> In the most recent Mercer survey of livable cities</a>, Canadian cities took 4th, 14th, and 15th place, while the highest-ranked American city was 33rd. (Photo Getty Images)
Best Place To Do Business?
According to Forbes, <a href="http://www.huffingtonpost.ca/2011/10/04/forbes-canada-best-country-business_n_994554.html" target="_hplink">Canada is the best country in the world to do business</a> and it's not because of the climate. Chalk it up to a lower corporate tax rate, excellent infrastructure and a well-educated populace. The U.S. and Europe's recent economic woes don't help them either. (Photo CP)
<a href="http://www.huffingtonpost.ca/2012/05/27/canada-income-inequality-by-numbers_n_1545900.html" target="_hplink">Canada has greater social mobility.</a> If you are born into the poorest 10 per cent, your odds of making it to the richest 10 per cent are considerably better in Canada than in the U.S. In other words, it's easier to realize the American Dream in Canada than it is in the U.S. (Shutterstock)
(Photo Getty Images)
When it comes to national anthems, we've always had a bit of an inferiority complex (the maple leaf is not a banner spangled in stars). But according to new research, our simple and quaint pro-Canuck ballad "O, Canada" is <a href="http://www.huffingtonpost.ca/2012/02/16/best-national-anthem_n_1282311.html" target="_hplink">among the world's finest.</a> We even trump the Americans and Brits. So what if you can't remember all the words? This is an anthem worth singing. (Photo Getty Images)
Having a baby is hard work. And many women around the world aren't given the amount of time off they deserve post-delivery. But here in Canada, the true north strong and free, a lady can take up to <a href="http://www.huffingtonpost.ca/2012/05/22/maternity-leaves-around-the-world_n_1536120.html" target="_hplink">a full year of paid maternity leave </a>(17 weeks at 55 per cent of their salary and an additional 35 weeks after that). This contrasts vastly with The United States, Papua New Guinea, Swaziland, Liberia and Lesotho who provide no type of financial support for new mothers. (Alamy)
It completes your morning bowl of cereal, can quench thirst and is the perfect companion to chocolate chip cookies. Milk, dear readers, is an all around amazing drink. And grabbing a glass of the white stuff in Canada is unlike anything you'll be able to experience in many other countries. That's because there's <a href="http://www.dairygoodness.ca/good-health/dairy-facts-fallacies/hormones-for-cows-not-in-canada" target="_hplink">a complete lack of unnatural hormones in our dairy products</a> (so concerns about negative side effects simply doesn't exist), and we <a href="http://www.thestar.com/news/ontario/article/760654--so-we-drink-milk-from-bags-does-that-make-us-weird" target="_hplink">serve the beverage in a plastic bag</a>, which, frankly, is far more convenient and environmentally friendly than cardboard containers (the baggies can be reused as makeshift lunch bags!). (Photos Shutterstock)
Take a deep breath in... and slowly exhale it out. Do you smell that? You may not, but that's the <a href="http://www.cbc.ca/news/interactives/air-quality/" target="_hplink">scent of clean air flowing through your lungs</a>. According to new research, Canada rates tops in air quality (meaning you can say "ta ta" to stinky smog and gross pollution. [Ed. Note unless you live in smog-heavy Toronto]). In fact, while the U.S. averages 18 micrograms of particulate matter per cubic metre of air, Canada averages only 13 micrograms. That also decreases our risk of developing bad air-induced health conditions like allergies. Now once again and all together now: inhale... (Photo Alamy)
Gay Marriage Rights
This "fake" Heritage Minute says it all: on July 20, 2005, Canada's government passed the Civil Marriage Act giving same-sex couples the same rights and privileges as heterosexual pairings. The LGBT community can not only marry, they can also adopt children. We also host one of the largest Gay Pride festivals in the world in Toronto every June/July.
French fries. Cheese curds. Gravy. All mixed together in one bowl. There's really nothing more to say than <a href="http://www.huffingtonpost.ca/jacqueline-vong/poutine-guilty-pleasure-food_b_1366823.html" target="_hplink">this dish is gluttonously awesome</a>. And we're proud to say it's 100 per cent Canadian. (Photo CP)
We Can Go To Cuba
A decades-long U.S. trade embargo on evil 'Communist' Cuba means that that island's beaches and resorts have long been free of American tourists. Canadians, needing an escape from long winters have been <a href="http://www.gocuba.ca/client/home/index.php" target="_hplink">flocking to the island for decades now</a>. Since the collapse of the Soviet Union, Canada has also been a crucial trading partner of the island country. (Photo Getty Images)
Many people think Canada is a country of citizens who don plaid, beaver tails and fur all year round. (We also, obviously, live in igloos.) So thank goodness for Joseph Mimran, the fashion powerhouse who is behind one of Canada's biggest and most popular clothing exports: <a href="http://www.joefresh.com/" target="_hplink">Joe Fresh</a>. His bright, colourful and decidedly on-trend collections are showing the world what Canada has to offer sartorially (which is not limited to some hipsterish version of a lumberjack). (Getty Images)
Once a 44.5 kg weakling, The Great White North punches way above its weight class in the music world. A few decades ago, only a rare few Canadian musicians managed to establish international careers. But the rise of government funding for music and CanCon radio regulations supporting domestic tunes developed our homegrown scene until it was strong enough to lead a post-millennial Canadian Invasion. Nowadays we claim the world's biggest artists in almost any imaginable genre - Arcade Fire, Justin Bieber, Feist, Drake, Michael Buble, Deadmau5, Metric, Shania Twain, Celine Dion, Nickelback, Diana Krall, etc. Don't tell the Republicans, but we can thank "socialism" for all that money, money, money these musicians are making. (Photos By Getty Images)
Tell us why you think Canada is great. Is it a photo of your favourite camping spot, a Canadian you really admire, our weird obsession with hockey and cold weather? We're looking for your responses on Twitter with the <a href="http://twitter.com/#!/search/%23LoveCanada" target="_hplink">#LoveCanada</a> tag, Facebook, in the comments and <a href="mailto:firstname.lastname@example.org?subject=Love Canada" target="_hplink">via e-mail</a>. We'll be collecting the best responses and featuring them on our site in the coming weeks. (Photo Getty Images)