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If there is a housing bubble in Canada, experts agree, it is in Toronto. The trick is fixing that without laying waste to other markets across the country.





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Greenspan engineered an epic monetary policy response to the downturn by cutting interest rates from 6.50 per cent at the end of 2000 to 1 per cent in 2003 and leaving them there until mid-2004, even though by that point it was clear that the recession was over and the recovery had begun. When the Fed did begin to raise rates, it was only at a pace that was “measured,” which turned out to be a quarter of a percentage point at a time. Look, dozens of books have been written about the financial crisis, and there were a confluence of factors that contributed to it, but too-easy monetary policy allowed a stock market bubble to morph into a housing bubble. In economics it can sometimes be difficult to determine causation. This is easy.

Now, the financial crisis was pretty awful, leading to millions of job losses and political upheaval that continues to this day. One would think that as a central banker in country A, if you witness this in country B, you would do everything in your power to avoid it. One would think.

Carney was an excellent crisis central banker. Unfortunately, he did not nail the dismount

Mark Carney was Governor of the Bank of Canada during the financial crisis and widely viewed as being a “star” central banker, eventually being hired away to run the Bank of England. Carney cut interest rates early and often leading up to the financial crisis, including a surprise 50-basis-point reduction to 3.50 per cent in March of 2008 shortly after taking office. He recognized the severity of the crisis early on, and took decisive action when others believed that “subprime was contained.” Carney eventually cut rates to 25 basis points in 2009 and started a policy of “conditional commitment,” meaning that the Bank of Canada would keep rates at the zero lower bound conditional on inflation for at least a year. Everyone understood that inflation wasn’t going up, so this had the effect of lowering yields on bonds with longer maturities.