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April 30, 2010

Higher interest rates could hurt Canada's economy

CANADA - The United States and Canada could see their economies hurt if interest rates go again in the near future. Bank of Canada governor Mark Carney is warning G20 countries to keep that in mind when trying to solve Greece's debt woes which is now threatening the European Union with a 2nd recession.

As Greece's national debt grows there is increased speculation that borrowing should be made more expensive by raising interest rates. But if various countries follow suit with this philosophy it will hurt businesses that are struggling in Canada and the United States, still in a state of recovery from the last recession.

Mark Carney says the problem is bigger than Greece, and bigger than the requirement that industrialized countries start ramping down their burgeoning debts, which in some cases are equal to the size of their entire economies.

Carney also says the industrialized nations must make clear to China and other emerging economies that the system cannot function unless they adjust their currencies and play a bigger role in supporting the global economy.

The United States, Canada and others have long complained that Asian nations have kept their currencies deliberately low to boost exports at the expense of other industrial economies, mostly in North America and Europe.

Some have pointed out that China's continued refusal to raise the value of the yuan is essentially "a trade war" designed to undercut the economic abilities of other countries.

It has been argued that a single currency system for the entire globe might eliminate these economic standoffs, but the process of creating a single currency system is plagued with problems of its own.

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