In one and the same week, the Toronto Dominion Bank has:
1. Issued a report [20 Oct 2010, pdf] warning that “The relentless rise in household debt in Canada, both in absolute terms and relative to personal disposable income (PDI), is a growing cause for concern.”,
and, at the same time,
2. Made changes in lending policies such that all new mortgages as of 18 Oct 2010 will essentially behave like lines of credit, making it easier for Canadians to go into more and more debt.
This is reminiscent of what our own central bank is doing, plying us with cheap money while counseling prudence.
The banks (central included) are aware that any pullback in the rate of borrowing will put the housing market at risk of serious price drops. Yet they also see that more and more borrowing will set up a more and more dire situation that will inevitably, at some point, have to reverse.
Judge them by what they are doing (keeping money cheap and loose) and not by what they are saying (be prudent).
They want the borrowing to continue; they are tolerating expanding debt loads; they hope that the inevitable reckoning happens on somebody else’s watch.
Or, like children covering their faces, they hope that the whole problem somehow magically disappears.
It won’t, but our bankers & politicians don’t seem adult enough to face the problem.