As the holiday season approaches, our attention turns naturally to the home front. Accordingly, my comments this afternoon will focus on households. I would like to concentrate in particular on the implications of Canadian household finances for financial stability in our country.
In response to the worst financial crisis since the 1930s, policy-makers around the globe are providing unprecedented stimulus to support economic recovery and are pursuing a radical set of reforms to build a more resilient financial system.
While conditions in the Canadian economy have improved since we met with you in May, many of the basic challenges remain. Before Paul and I take your questions, allow me to outline some of the highlights from our latest Monetary Policy Report, which the Bank released last week.
While conditions in the Canadian economy have improved since we met with you in February and April, many of the basic challenges remain. Before Paul and I take your questions, I would like to give you some of the highlights from our latest Monetary Policy Report, released last week.
After briefly reviewing the current macrofinancial environment, I intend to concentrate on the G-20 reform agenda. The financial crisis has cost tens of millions of jobs and trillions of dollars in foregone output.
Recent indicators point to the start of a global recovery. Economic and financial developments have been somewhat more favourable than we expected in July, although significant fragilities remain.
Indeed, the global financial crisis of the past two years has presented unique, stressful challenges that have forced us all to assess what has worked well and what needs to change. Today, I would like to review some of the critical thinking around these issues, primarily from the perspective of our work at the Bank of Canada.
September is a time to review the past, reflect on the present, and reaffirm goals for the future. Like students who returned to school this month, I will follow this annual discipline today by (i) reviewing the extraordinary events of the past year; (ii) reflecting on the policy response and the current economic outlook; and (iii) reaffirming the Bank of Canada's commitment to price stability.
The Bank's mandate is to promote Canada's economic and financial well-being. Clearly, this is an important mandate, and we are determined to demonstrate excellence as we work to fulfill it.
The theme of the conference, "managing the recovery," is particularly timely: As we move past the gravest dangers of the financial crisis toward better days, attention has turned to the policy challenges posed by the recovery.
Walsh's paper highlights many useful lessons that can be learned from the conventional framework and its various extensions. However, the financial crisis provides a stark and costly reminder of just how incomplete the standard model is.
Global economic activity appears to be nearing its trough, and there are increasing signs that activity has begun to expand in many countries in response to monetary and fiscal policy stimulus and measures to stabilize the global financial system.
From the initially careful references to data that suggested a slowing of the rate of decline in global activity, the use of the term "green shoots" has quickly evolved.
The theme of this conference – "Adapting to a New World Order" – suggests that it is clear how global commerce and finance will be reorganized in the wake of the current crisis. However, the outcome is far from preordained. How we manage the rebalancing of the global economy could profoundly influence how open, equitable, and prosperous the New World Order will be.
The financial turbulence that began in the U.S. subprime-mortgage market in August 2007 reached maximum intensity towards the end of 2008, and enveloped the entire global economy. Strains that had previously been concentrated in a few major financial centers turned into a full-blown crisis, affecting both industrial and emerging-market economies through trade, financial, and confidence channels.
These are difficult economic times, with the Canadian economy being buffeted by an intense and synchronized global recession. In recent months, that global recession has been exacerbated by delays in implementing measures to restore financial stability around the world.
These are difficult economic times, with the Canadian economy being buffeted by an intense and synchronized global recession. In recent months, that global recession has been exacerbated by delays in implementing measures to restore financial stability around the world.
These are difficult economic times with the Canadian economy being buffeted by an intense and synchronized global recession. In recent months, that global recession has been exacerbated by delays in implementing measures to restore financial stability around the world.
These are very challenging times. The Canadian economy is in recession. The global economy is facing a crisis of confidence, triggered by the most severe financial meltdown since the Great Depression; fanned by sharp falls in trade, manufacturing output, and financial wealth; and intensified by steep increases in unemployment.
Across the world's major economies, addressing the failures of banking ranks among the highest policy priorities. In the harsh glare of the current financial turmoil, it is clear that many banks outside of Canada were either not doing their jobs or were doing them in ways that created enormous risks.
With your professional interests in foreign exchange, money markets, capital markets, and derivatives, I'm sure the past year and a half has been exciting and interesting – if those are the right words. We've been living through a period of astonishing financial turbulence, historic marketplace losses, and serious threats to financial stability.
As we have consistently emphasized, stabilization of the global financial system is a precondition for economic recovery, both globally and in Canada. To that end, policy-makers around the globe have acted aggressively and creatively by initiating a series of unprecedented actions aimed at stabilizing the global financial system.
Let me state at the outset that the speed and synchronized nature of the recent global downturn has resulted in a heightened degree of uncertainty, which is evident in the diverse views on the outlook.
These are challenging times, indeed. We are facing a financial crisis without comparison for generations. Most financial markets have experienced historic declines in prices and unprecedented spikes in volatility.
The outlook for the global economy has deteriorated since the October Monetary Policy Report, with the intensifying financial crisis spilling over into real economic activity.
The extraordinary turmoil of 2007 and 2008 has brought to the fore many issues and challenges, most of which will be with us for some time as we deal with what has become the deepest financial crisis since the 1930s. Policy-makers around the world have taken bold and timely steps to deal with the financial instability and economic crisis, but it will take time for confidence to be restored and for markets to become fully functional again.
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