Canada is having a much better crisis than the U.S., though some fret about debt and deficits
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But even when that happens, the managers of vast pools of international wealth will still want debt to offset their riskier bets, implying constant downward pressure on borrowing costs.
“Many of us have been wondering where the bond vigilantes have gone; it’s kind of surreal,” said Michael White, a portfolio manager at Toronto-based Picton Mahoney Asset Management. “We’re kind of living out a new rule book.”
We’re kind of living out a new rule book
Michael White, portfolio manager, Picton Mahoney Asset Management
Toronto-Dominion’s Caranci shows the upside risk of testing the new rules. No U.S. industry has returned to pre-pandemic employment levels, while utilities, education and professional services in Canada have all returned to normal. Participation rates were stronger in Canada before the crisis, and are even more so now, as Canadians have resumed looking for jobs at a faster pace than Americans.
Caranci said Canada’s relative success at getting people back to work is the result of a more effective COVID-19 strategy, stronger “backstops” for parents and the willingness of governments to spend relatively freely. The latter shows up in the hiring of health workers and teachers, which has been much stronger in Canada than in the U.S., where states tend to be constrained by strict spending limits.
No one thinks Canada should spend at current levels for an extended period of time, but it would be a mistake to pull back too soon. Yes, it’s unfair to saddle the next generation with our debt, but it would be worse to bequeath them a weak economy. That is currently a bigger issue for the U.S. than it is for us.
“If the past is any indication, there’s a good chance Canada’s job market will maintain resilience through the pandemic, offering the potential for less longer-term scarring than its U.S. counterpart,” Caranci concluded.
Financial Post
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