Brady Yauch – Is Carney leaving just in time? - BNN Blog
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Is Carney leaving just in time?

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Record levels of household debt? Check. A once red-hot housing market showing signs of cooling? Check. An export sector struggling with a strong loonie and a weak global economy? Check again.

Now the Canadian economy can add a "rudderless" central bank to its list of worries, after the current governor, Mark Carney, announced on Monday that he will be leaving in six months to take the top job at the Bank of England.

What makes Carney's exit so unpalatable for many investors is that he had become the face of stability in an increasingly unstable world. Not only did he help steer the Canadian economy through the financial crisis – exiting the crisis stronger than many of its developed peers – but he also recently took the helm at the Financial Stability Board, which is tasked with pushing the world's largest economies to introduce new financial regulations.

Carney also helped put Canada on the global scene, allowing the country to be more than simply a hewer of wood and drawers of water (now oil). He made sure Canada's strong regulation of its banks – which ensured that the financial crisis largely stopped South of the Border – became the envy of policy makers around the world.

Rather than being the overlooked sibling to the U.S., Carney ensured that bankers, investors and politicians from around the world took a long hard look at how things were done in the Great White North. Many of those who did come and take a look seemed impressed.

Carney gained the backing of many investors with his ability to tackle the financial crisis head-on. As the global financial system teetered near collapse in 2008-09, Carney was one of the first central bankers to come straight out and tell the market that interest rates were going to stay low for at least another year. Many commentators believe that Carney's decisive action established the template for other central banks to follow in dealing with the financial crisis. The U.S. Federal Reserve, for example, recently employed the same tactic.

He also elevated the public profile of the Bank of Canada, traditionally a fairly "boring" institution that attracted little attention from the general public, by crossing the country giving public speeches. He became such a household name that there were whispers he would take a run at political office.

And he got himself named as one of the world's most influential people in 2010 by Time magazine. Not many central bankers can say they've done that.

But Carney's sudden exit may leave a sour taste in the mouths of some investors, as he is leaving at exactly the moment when the Canadian economy needs a strong leader.

Canadian households are swimming in debt, with the much-watched debt-to-income ratio currently over 160 percent, hitting the same level as it did in the U.S. and UK prior to the financial crisis (although some economists say that the different methods of measuring that figure mean Canada is actually in better shape than it appears on first glance). Carney has repeatedly taken Canadian consumers to task for the their free-spending ways, warning them he has his finger on the interest rate trigger and that now is the time to repair the debt-riddled balance sheets.

Canadian consumers appear to have listened, albeit slightly. Household credit in Canada expanded by 5.7 percent on a year-over-year basis in September, according to recent data. That's just a slight increase from the 5.6-percent rate posted in August, but that marked the slowest pace of credit growth in a decade.

Who knows if they'll continue listening once he departs.

There is also the threat of a looming housing slowdown. Canadian housing prices bucked the global trend and rose sharply in the wake of the financial crisis. But that meant the housing market became a formidable engine of economic growth, with its legions of a construction jobs and investment – not to mention a personal ATM for many households. Any pullback in housing prices could have a dramatic impact on economic growth.

How the central bank deals with such a housing slowdown – which is quickly becoming a reality – is incredibly unclear now that there is a new sheriff in town (even if that sheriff comes from the bank's inner circle).

Nonetheless, the decision has been made -- Carney is out. But in his absence is the nagging feeling that he might be jumping at just the right moment.

Brady Yauch is a writer and editor at BNN.ca

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