Category: Economic

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Economic

Overall risks to financial stability are largely unchanged, but household vulnerabilities have moved higher


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The overall level of risk to Canada’s financial system is largely unchanged from six months ago, the Bank of Canada said today in its biannual Financial System Review (FSR). While household vulnerabilities have moved higher, the ongoing economic recovery in Canada means that the overall risk remains the same. The Canadian financial system is resilient and functioning effectively.

The Bank continues to highlight two vulnerabilities related to Canadian households: the elevated level of household indebtedness and imbalances in some regional housing markets. A third vulnerability identified is the fragility of fixed-income market liquidity.

Strong regional divergences persist among housing markets. Job losses have increased financial stress for some highly indebted households in the regions most affected by low commodity prices. Meanwhile, in the greater Vancouver and Toronto areas, rapidly rising house prices and strong mortgage credit growth are increasing the share of highly indebted households. In these two markets, it is unlikely that economic fundamentals will justify continued strong price increases.

“This suggests that prospective homebuyers and their lenders should not extrapolate recent real estate performance into the future when contemplating a transaction,” said Governor Stephen S. Poloz.

The vulnerabilities described in the FSR could propagate shocks throughout the financial system if a major event were to trigger one of the identified risks. The most important continues to be a severe recession and an ensuing sharp increase in unemployment that impairs debt service and leads to a broad-based correction in house prices. The probability remains low as the economy continues to grow, supported by continued expansion in the United States, and accommodative monetary policy and fiscal stimulus in Canada.

Other key risks identified are a sharp increase in interest rates due to higher global risk premiums, stress emanating from China and other emerging-market economies, and a prolonged weakness in commodity prices.

Published twice a year, the FSR is intended to raise early awareness of the key vulnerabilities and risks to the Canadian financial system. It focuses on downside risks, rather than the most likely future path for the financial system.

The June issue of the FSR also features two reports written by Bank of Canada staff:

  • Large Canadian Public Pension Funds: A Financial System Perspective
  • Securities Financing and Bond Market Liquidity



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Economic Ft Mac Politics

Métis Trapper Harvey Sykes Vows to Rebuild Trapper Cabin Destroyed by Wildfire

Harvey Sykes lost his trapper cabin when the recent wildfire hit Fort McMurray, and now the Métis trapper is vowing that he will rebuild on the exact spot. The cabin was home to Sykes since birth, and when the wildfire struck Harvey could only grab a few clothes and some of what he termed angry letters from the Fort McMurray city administration which go back to the 1980s. The cabin was built by Harvey’s father in 1948 and this is where Harvey was born in 1952. It is the last Métis trapper cabin in the Waterways and it holds great significant for the entire First Nations group.

When asked about his plans for the future Harvey Sykes stated “Relocating? Move somewhere else? That is not an option for me. I have to go back to Fort McMurray and most importantly, I have to go back to that spot. No question about it. Home is home and I don’t care what anyone at the city will say. I’m going back and rebuilding. That was the oldest part of town and where I’ve been all my life. It’s beautiful here, but it’s like I’m in limbo after going through a nightmare.” In 1980 letters started arriving from the Fort McMurray administration but the trapper has never been fined or charged with any offence. For the most part Fort McMurray ignores Sykes and he returns the favor. Hopefully this truce will continue and Harvey can rebuild his trapper cabin in the same spot.

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Economic

Monetary/fiscal policy mix has implications for debt and financial stability, Governor Poloz says


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The mix of monetary and fiscal policies in an economy has important implications for debt levels and financial stability over the medium term, Bank of Canada Governor Stephen S. Poloz said today.

In the Doug Purvis Memorial Lecture given at the Canadian Economics Association’s annual conference, Governor Poloz used the Bank’s main policy model to construct three “counterfactual” scenarios of events from the past 30 years that show how different policy mixes can influence the amount of debt taken on by the private and public sectors.

Tight monetary policy with easy fiscal policy may lead to the same growth and inflation results as easy monetary policy paired with tight fiscal policy in a given situation, the Governor explained. However, the consequences for government and private sector debt levels would be quite different.

Recent experience in Canada and elsewhere shows that debt levels—whether public or private—can provoke financial stability concerns, said Governor Poloz. The insight about policy mix is important as authorities worldwide work to incorporate financial stability issues into the conduct of monetary policy, he added.

The Governor stressed that the counterfactuals are intended to illustrate the impact of the policy mix on debt levels; they aren’t meant to be taken as an opinion about what the best policy mix was in the past or is now.

“Hindsight is always 20:20 and such a discussion would have little meaning,” Governor Poloz said. “The best mix of monetary and fiscal policy will depend on the economic situation.”

There should be a degree of coordination between the monetary and fiscal authorities that allows both to be adequately informed of each other’s policies and consider their implications on debt levels over the medium term, the Governor said. In Canada’s case, the central bank operates under an explicit inflation-targeting agreement with the federal government that enshrines its operational independence, while allowing for both parties to share information and judgment, Poloz said. This framework represents “a simple yet elegant form” of policy coordination, he noted.

The lecture honours Doug Purvis, a Canadian macroeconomist and Queen’s University professor. In 1985, Purvis delivered the Harold Innis Lecture, in which he argued that rising government debt levels would eventually compromise the ability of authorities to implement stabilization policies. Governor Poloz said his lecture today is meant to build on Purvis’ initial insights by bringing more advanced macroeconomic models to bear on the topic, and linking them to the topical issue of financial stability.



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Economic Ft Mac Health

Waste Disposal During Wildfire Recovery Will Increase Considerably and Involve Special Considerations

Waste disposal in the Fort McMurray and Wood Buffalo area is expected to increase considerably for the next 6 months or so, and as landfill space is used a lot of the waste being disposed of may have special considerations that need to be taken into account. Over the next 6 months it is expected that more than 771,000 tonnes of waste will accumulate as a result of the recent wildfire. Some neighborhoods saw 80% of their residences destroyed or severely damaged. A previous fire in Slave Lake which destroyed 400 homes in 2011 resulted in 4 years of waste accumulating in just 4 months. The manager for the landfill in Slave Lake, Tom Moore, explained that “The clearing and disposal is going to be an immense operation. But it will be done.”

Fort McMurray is already setting up waste disposal arrangements for residents who return during the re-entry plan, with drop off locations and pick up routes being scheduled. Some of the materials and debris will not end up using landfill space and will be recycled or reused instead. Some debris contains asbestos and other health hazards though, and this waste must be handled carefully to avoid any risks. Moore discussed the challenges that lie ahead and said “Fort McMurray’s infrastructure is larger and largely in tact. They have the equipment and technology to handle the waste. Once the big chunks come in from tearing down buildings and clearing neighbourhoods, that’ll be a lot of waste. But the only real struggle they’ll have is the traffic outside the landfill on Highway 63. Under normal circumstances, the landfill receives these kinds of toxic materials everyday. Your landfill is designed for that. Nothing has changed. Only the volume. The probability of the landfill contaminating the outside is extremely low.”

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Alberta Economic Entertainment Ft Mac

June 29 Fire Aid for Fort McMurray Will Feature Nickelback as Headline Act

On June 29 Fire Aid for Fort McMurray will take place at the Commonwealth Stadium and the lineup is incredible so far. Canadian group Nickelback has agreed to be the headlining act and the event is being held to raise funds which will be used to help the Fort McMurray community recover from the wildfire and forced evacuation. Tickets went on sale yesterday, May 30, and they are available through Ticketmaster. On the website for Ticketmaster there is also an option to purchase tickets to the event and then donate them to Fort McMurray residents, and any tickets which are donated will be given away to deserving Fort McMurray community members by the United Way. The TD Bank Group has already donated half a million dollars for fire aid and other organizations are also expected to donate financial resources as well.

Nickelback is not the only group who will take part in the Fire Aid for Fort McMurray event. The concert roster includes Dean Brody, Blue Rodeo, Corb Lund, High Valley, the Rankin Family, Ian Tyson, Dallas Smith, High Valley, Randy Bachman, Dear Rouge, Brett Kissel, Alan Doyle, and the Sadies. The event capacity is between 40,000-45,000. One volunteer committee member who helped organize the fire aid concert, Tim Shipton, explained “You really can move mountains and move aside self-interest for the greater good. It will bring together the community in support and celebration of that amazing city to the north Fort McMurray.” Another committee member, Jeff Parry, noted that the funds raised would not be enough to cover the full recovery efforts. “No matter what we raise here in the millions it’s going to be a Band-Aid compared to the billions needed. When your barn’s burned down you just go (rebuild) it and get ‘er done. Ask not what your province can do for your province but what you can do for your province.”

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Economic Ft Mac

Rent Relief Offered by Wood Buffalo Housing and Development Corporation

An announcement by the Wood Buffalo Housing and Development Corporation may give some Fort McMurray resident much needed rent relief. According to the organization tenants will receive rent relief for May and June, with relief starting May 3 which was the first say that the mandatory evacuation for the area was put into place because of the wildfire emergency. The press release also reported that at minimum the rent relief would cover May and June but there is a possibility that this could be extended at some point. During the vote the board members of the WBHDC voted unanimously to provide the relief. It is nice to see the board members do the right thing for tenants and the community because many people are already struggling with the loss of property and the expense of relocating during the mandatory evacuation.

In addition to rent relief for at least two months the Wood Buffalo Housing and Development Corporation has announced that all of their tenants will have a home which they can come back to. For tenants who resided in property which was damaged or destroyed during the wildfire they will be relocated into suitable housing in other properties controlled by the organization. Maggie Farrington, the board chair of the organization, explained “Though the law states we are legally entitled to collect rents, even during such a terrible disaster, the Board felt strongly we had a moral obligation not to impose additional hardship upon our tenants who have already suffered so much.” Acting CEO of WBHDC Greg Elsasser stated “Though our losses to the wildfire were restricted to townhomes in Beacon Hill and our recently completed Siltstone project in Timberlea. People who have lost their homes will be relocated immediately into appropriate accommodations in one of our other properties. Looking after existing tenants is our first priority.”