Thursday, April 06, 2006

Chinese Impact on Canadian Economy and Housing Market

Since 1995, China has pegged the yuan to the U.S. dollar, and bought large sums of U.S. securities to sustain an undervalued currency as its trade surplus swells. These Chinese purchases push down U.S. and Canadian long-term interest rates.

In turn, these have given the Canadian economy inexpensive mortgages and a housing bubble.

Now, the economy is about to go the other way. The housing market is cooling and consumers cannot borrow to spend much more. Slowing retail sales and a growing trade deficit are taxing growth, just as gas prices are taking off again.

Lower short-term rates do little to help consumers when home prices are stagnant or falling, as is likely in the months ahead.


Post a Comment

<< Home