U.S.-style meltdown won't happen here: Harper
Conservative Leader Stephen Harper is dismissing dire predictions of a U.S. style financial meltdown here in Canada.
In response to the Merrill Lynch report that suggests the housing market here is just as stressed as its U.S. counterpart, Harper said Canada's economy is still one of the most robust among industrialized, Western nations.
Despite a slowing Canadian economy, Harper said a collapse like the one occurring in the U.S. simply won't happen.
"We are taking steps to show Canadians and show international investors that this is a strong place to do business, and a well-run country with strong balance sheets of governments, households and financial institutions,' Harper said.
Earlier this week, Finance Minister Jim Flaherty told CTV's Question Period that Canadians can "rest assured our banks are solid."
He said the banking crisis in the U.S. is a concern for the global economy, but Canada has taken steps to make protect its financial sector.
Economists at Merrill Lynch -- one of the world's most respected financial firms -- said in the report that Canadian households have "been running a larger financial deficit than households in either the U.S. or the U.K."
"After forty years of net saving, Canadian households moved into sustained deficit in 2002," David Wolf and Carolyn Kwan wrote in a report issued by Merrill Lynch's Canadian division.
The firm's data implies that the Canadian household sector is now overextending itself "as much as the U.S. or U.K. ever did."
Canadians' household net borrowing was 6.3 per cent of disposable income in 2007. That's more debt than households in Britain and close to the peak of the U.S. shortfall, just before the subprime mortgage crisis erupted in 2005.
The Merrill Lynch report says the market view that Canada's housing and credit markets are not going to "crack" like they have in the U.S. may be wrong.
"We fear, however, that it may simply be a matter of time. The clear 'tipping point' in the U.S. was the emergence of falling house prices in the summer of 2006, kicking off the vicious circles that have brought the financial system and the wider economy to the brink," the report said.
"We're just now starting to see house prices fall in Canada, and sharp rises in unsold home inventories increasingly imply that this will not be a transitory phenomenon."
Economist Don Drummond of TD Bank told CTV's Mike Duffy Live on Wednesday that Canada isn't destined to follow the U.S. into a housing meltdown.
"There are just so many things that are different. First of all we have hardly any sub-prime mortgages in Canada," he said. "By law, if you don't have a large down payment on a home in Canada, then half that mortgage has to be insured, so we don't have the financial underpinnings."
Drummond says he expects to see housing prices across the country "flatten out" over a period of time.
"We will see some housing price declines, concentrated in the west," said Drummond. "These aren't going to be the 50% price rollbacks on houses that we've experienced in Calgary and Florida we just did not have the ... lack of discipline in the mortgage that got them into that problem."