Targeting low-interest loans

The Bank of Canada has been keeping interest rates at record lows in an effort to keep the economy from tanking.

Jim Flaherty

However, at the same time Mark Carney, governor of the Bank of Canada, and federal Finance Minister Jim Flaherty are cautioning Canadians to reduce their debts from record-high leverage levels.

One way out of this dilemma is to target the low interest rates. For example, the cheap loans could be targeted to companies that hire more employees. Or cheap loans could be directed to consumers who could well afford to carry greater debt.

Carney and Flaherty might be able to achieve these goals by negotiating with bankers and other money lenders.

Flaherty might be able to reduce the degree of leverage on mortgages by limiting Canadian Mortgage and Housing Corp. insurance to 75 or 85 per cent of the appraised value of the property.

Mark Carney

Incidentally, if he’s worried about high quota prices, he could instruct Farm Credit Canada and other lenders to require greater equity in the farm, not counting quota value, for any loans to buy more quota.

Flaherty might also introduce a tax on loans to highly-leveraged borrowers.

My point is that simply holding interest rates low is too blunt an instrument in these times of high debt and global economic fragility.

The foolish ones who borrow beyond reasonable limits put not only themselves, but all of us, at risk.

Certainly that should be one of the lessons we could learn from the Wall Street crises of 2008 and the current crises of the governments and banks of Europe.

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