From: David Dodge
Sent: 04 May 2012 3:16 PM
To: jstackhouse@globeandmail.com
Subject:
Importance: High

John,

I was distressed to read your editorial that was based on a report in the Globe and Mail on May 2 that did not accurately reflect my views on household debt in Canada. Your reporter has since contacted me to "apologize for the mix-up". He correctly suggests that he should have pressed further in his telephone interview with me to ensure that he understood my exact meaning.

In our interview we did not discuss monetary policy. I did not criticize the Bank of Canada policy either, implicitly or directly as you suggest in your editorial. Had I done so, it would indeed have been "ill judged".

In our discussion of the current high ratio of household debt to income, I indicated that this indeed does constrain consumption going forward and thus has an impact on future economic growth (as the Bank of Canada has indicated). I also pointed out that the elevated level of household debt would constitute a risk to the stability of our financial system if there was a sharp run up in unemployment and hence reduction in household incomes, but that a return over time to "more normal" interest rates did not pose such a risk. That said, I certainly support the Bank's message of caution that households should avoid building excessive leverage.

I certainly did not convey "optimistic comments on housing markets" as you say in your editorial. I simply made the point that the increase in Toronto and Vancouver was being driven in part by offshore investment. The possibility of a reversal of that investment flow constitutes the most serious source of risk of a sharp price correction in those markets.

Finally, as I have noted many times, both during my term as Governor and subsequently, the Government through its ability to set the terms and conditions for government backed mortgage insurance, can and should constrain the ability of the most risky households to take on excessive leverage and thus contribute to house price escalation.

To suggest that my observations were intended to "undermine the present Governor's salutary efforts of persuasion" is to misrepresent me and can only be seen as your newspaper's attempt to create controversy where none exists.

Sincerely,

David A. Dodge, OC
Senior Advisor, Bennett Jones