Too Much Lending Eh?


Leading Canadian economists and government officials warned in a recent quarterly economic review that escalating consumer borrowing in the country may lead to financial instability in Canada. As a matter of fact, in the third quarter of last year, household debt was at 150% of personal disposable income. Economists believe that this increasing risk is only underpinned by the rising home prices that are largely due to immigration and high demand for homes by the immigrants. From a macroeconomic perspective, I share the same concerns. Assuming the rising house prices is truly due to the large influx of immigrants in recent years, a slight change to Canadian immigration laws may greatly affect the housing prices in Canada. Under the domino effect, the current household debt situation, if affected by the housing price, can lead to a drastic downturn for the Canadian economy.

On the other hand, the specificity rule states that an efficient government policy acts directly as possible on the source of an economic problem. Therefore, I believe it is in the best interest of the Canadian government to implement policies that directly tighten the criteria for lending to reduce risks in domestic financial stability.