ACCT 2230 Lecture Notes - Lecture 4: Mark Carney, Main Source
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The financial crisis of 2008 was considered by many economists to be the worst
financial collapse since the great depression in the 1930s. We witnessed many banks
being bailed out, large institutions going bankrupt, an increase in unemployment, and a
housing sector collapse. People all around the world felt the effects of the crisis and
many feared a total economic collapse. While Canadians didn’t experience the worst of
the crisis compared to countries such as the United States, we had our fair share of
difficulties. However, with some smart policy changes and a strong bank system we
were able to stimulate economic growth and overcome the crisis.
The main source of Canada’s surprisingly strong avoidance/recovery of the
financial crisis came down to our central banks and stricter banking regulations.
Bankruptcies and defaults have always been low in Canada, which is a huge reason
why Canadian banks did not suffer as hard as other countries – specifically the U.S.
Having a more risk-averse system, the banks never took huge losses from failed
mortgages. The exact opposite was true for countries like the United States, where we
saw a huge housing crisis and large increase in house foreclosures. Our government
also kept a budget surplus from the early 2000s, and had close to a balanced budget
even through the crisis. What this means was that instead of having a huge increase in
government spending to stimulate consumer spending, we saw the central banks step
in and make some changes that kept people spending money.
One person who may be most responsible for Canada’s economic turn-around is
the governed of the Bank of Canada - Mark Carney. Awarded “Canadian of the Year” in
2012 by the Canadian Club of Toronto, Carney seemed to stay ahead of other central
banks and made some smart short and long term decisions that enabled Canada to
avoid some of the worst impacts of the crisis. One big reason for this was Carney’s
decision to keep interest rates at their lowest possible for a year. By having lower
interest rates, Canadians were more easily able to borrow money which in turn
increased consumer spending and enabled economic growth. This also worked
because it broke the vicious cycle of a depression – consumers not being able to
purchase anything because they can’t afford it, and therefore businesses not being able
to sell anything because people lack the funds. Consumers were able to borrow money
which kept businesses afloat, and it also kept the housing sector in decent shape
compared to other countries. Another decision Carney made that helped the economy
was adding liquidity which stimulated economic growth and raised stocks as well. What
we saw from these types of decisions was CPI remained about the same and constant,
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