Our new Bank of Canada governor is no Mark Carney.
That became clear on Wednesday, when Stephen Poloz, the country's freshly-appointed new top banker, gave a speech to the Oakville Chamber of Commerce, in which he lauded the Canadian consumer for taking on more debt, thereby carrying the country through the global economic crisis of recent years.
Hmm. There's no doubt that consumers spending more (especially on housing) helped Canada's economy weather the financial crisis, but these comments marks a significant change in tone from our central bank governor.
Contrast Poloz' comments with those of Mark Carney, who declared that runaway household debt is the biggest risk to Canada's economy. Poloz apparently doesn't see it this way; he sees external threats, like the Eurozone debt crisis or a slowdown in Asia, as being the largest threats.
Carney was occasionally "hawkish," warning he'd raise interest rates if he felt debt was really running out of control. No such warnings from Poloz, who has been declared "dovish" by the business press corps.
Simply put, Stephen Poloz doesn't seem particularly worried about household debt. Which is too bad, because household debt has hit record highs, and is now at similar levels to what was seen in the U.S. and the U.K. before those countries entered a protracted period of debt "deleveraging" (read: stagnant retail sales and falling house prices).
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Just last week, Paul Krugman, arguably America's most famous economist (if that's not a contradiction in terms), warned that he sees Canada at risk of a "deleveraging shock" due to household debt and house prices well above their long-term trends.
Now to be clear, if anyone is to blame for Canadians' massive debt burden (other than the debt holders themselves), it's Mark Carney. After all, he dropped interest rates to rock-bottom levels back in 2009 and kept them there. Poloz, if anything, is expected to keep interest rates low for even longer than Carney hinted at.
But at least Carney seemed to be aware that his solution to the economic crisis was creating risks of its own. Poloz doesn't seem inclined to see it this way. It seems very unlikely, at this point, that Poloz will put much focus on stopping debt-driven asset bubbles from forming in the economy.
Poloz also said on Wednesday that he sees the Bank of Canada's inflation target as "sacrosanct." Now that might not seem significant, but in light of a debate going on in the world of economics today about the value of inflation targeting, it's a very telling comment.
Mark Carney recently put some weight behind the idea that central banks should stop setting interest rates based on inflation and set interest rates instead in order to generate a certain targeted amount of economic growth. It's a fairly bold idea in economics, and controversial given that inflation targeting has been the conventional wisdom since the 1980s or so.
But whereas Carney was willing to entertain different approaches and ideas, Poloz seems very much happy with the way things have been done so far.
Of course, Poloz may simply be speaking to markets, as it were -- he wants to show jittery investors that he's "sound" and won't rock the boat.
In which case, he may yet change his tune on debt as investors get used to him. We shall see.
But if Mark Carney is, as many claim, the world's greatest central banker, and if it was Carney's policies that carried Canada through the economic crisis, then is it good news to hear that Canada's new top banker sometimes sees things in a very different light?
Let's hope Stephen Poloz's outlook is a different kind of right, rather than just plain wrong.