Heavily indebted Canadians, know this: Stephen Poloz, the governor of the Bank of Canada, does NOT have your back.
Poloz said this past weekend that Canadians' record-level debt loads are not surprising and are a “rational response” to years of low interest rates.
But if a debt crisis and/or a housing market crash comes, don’t blame the bank’s interest rates. Consumers and lenders have no one at which to point the finger but themselves for “bad choices,” Poloz said.
Borrowers and lenders “bear the ultimate responsibility for their own decisions at the individual and firm level,” Poloz told an audience at the National Association for Business Economics in Washington, D.C. “It is not the role of monetary policy to protect individuals from making bad choices.”
That’s not to say that Poloz has no interest at all in Canadians’ burgeoning debt levels. To the extent that a debt crisis could put Canada’s entire financial system at risk, the bank continues to “monitor the situation as a matter of course,” Poloz said.
Poloz' words may be an attempt at managing "moral hazard" — the possibility that consumers and businesses will become careless with their debt if they believe they will be bailed out in times of trouble.
But the bank governor’s declaration makes it clear that Canadian household debt levels — currently sitting at a record high above 164 per cent of disposable income — aren’t driving decisions at the BoC.
That marks a stark contrast with the previous BoC governor, Mark Carney, who often said he would be willing to intervene if debt levels grew too high.
Rather, Poloz has been focused on the drop in oil prices, which has sent oil-producing parts of Canada into recession. The BoC twice lowered its key lending rate this year, which Poloz says helped to cushion the blow from the oil price crash, but which also helped push consumer debt levels to new highs.
But Poloz says responsibility for dealing with high debt levels falls to borrowers and lenders, as well as to the regulators who oversee lenders, and the politicians who set “macroprudential” policy, such as which mortgages can be insured by Canada Mortgage and Housing Corp.
Ultimately, Poloz sees little chance of a debt crisis in Canada. Echoing an argument made by other economists in recent years, Poloz noted that, even though household debt is at a record level, low interest rates mean that monthly debt payments remain as affordable as they were in 2008.