The Canadian economy appears to be on the mend again after a major stumble earlier this summer that rekindled fears of a possible double-dip recession.

Fresh evidence that July may have been an aberration, rather than the beginning of a downward spiral, built Friday as Canadian manufacturing, housing, and U.S. retail sales all came in surprisingly strong.

The most dramatic boost came in the unlikeliest place — a strong two per cent jump in the troubled manufacturing sector in August, powered by motor vehicle, petroleum and coal product manufacturers.

As well, new orders were up 5.3 per cent in a signal of future activity.

On the heels of better-than-expected export numbers Thursday, fuelled by auto shipments, the data is the first strong news the factory sector has received in months.

Equally important, say analysts, is that the long-idle U.S. consumer is showing signs of reviving, with the third consecutive month of healthy growth coming in September, a 0.6 per cent pickup following gains of 0.7 and 0.5 per cent the previous two months.

After a swoon, the Canadian housing sector is also showing signs of stabilizing. The Canadian Real Estate Association reports home sale activity rose three per cent in September, reaching the highest level since April.

“It’s a great way to end a Friday,” Scotiabank economist Derek Holt said. “We’ve got a whole Goldilocks round of data with pretty strong growth indicators but no inflation. This is a synchronous upturn in a broad cross-section of indicators that unwinds the synchronous downturn of the prior month.”

With positive data appearing for both August and last month, July appears to have been the low point of the rapid slowdown suffered by the Canadian recovery since it’s quick rebound of last fall and winter months.

Not only did July result in the first real contraction of activity at minus 0.1 per cent, it also ended the string of strong job creation numbers, actually producing the first loss — 9,000 overall and 139,000 full-time — since last year.

Economists caution that while a double dip appears to have been averted, for at least the rest of the year, there is also now signs that the economy is ready to take off.

The Bank of Montreal says the latest data is consistent with growth of about 1.5 per cent during the just completed third quarter — very modest for this early in a recovery cycle from recession. http://news.therecord.com/Business/article/794558

For some first-time buyers, arranging financing is more daunting than the actual purchase of a home. There’s a glossary of terminology associated with taking out a loan, including variable- and fixed-rate mortgages, debt-service ratio, amortization period, maturity date, and mortgage insurance.

Many first-time buyers look to a mortgage broker to help them stickhandle around these issues. But it’s not that easy because not everyone who calls himself or herself a “mortgage broker” is licensed to provide this service by the Financial Institutions Commission, which is the provincial regulator.

The president of the Mortgage Brokers Association of B.C., Joanne Vickery, told the Georgia Straight in a recent phone interview that members of her association work with many different lenders to negotiate mortgage financing on behalf of their clients. Potential lenders include chartered banks, credit unions, and other organizations that provide money directly to borrowers. “We’re able to source business for a client, and put them into something that’s going to best suit their needs,” Vickery said.

An independent mortgage broker is paid by the lender, so there is no charge to the consumer.

Financial institutions, including banks and credit unions, also employ people who offer advice on mortgages, but Vickery emphasized that these people are not “mortgage brokers” in the true sense of the words. She prefers calling them “road reps”.

“Road reps are technically employees of the bank,” Vickery said. “They are not mortgage brokers.”

She emphasized that road reps who work for national companies, such as the chartered banks, are licensed by the federal Office of the Superintendent of Financial Institutions. She maintained that their first obligation is to sell products offered by their employers, which sets them apart from mortgage brokers.

“Many mortgage brokers have clients who say ‘my broker from the Royal Bank or my broker from the Bank of Montreal’,” Vickery said. “We say they’re not really brokers.”

She said that MBABC is collaborating with the Financial Institutions Commission to educate the public on the difference between licensed mortgage brokers and those who sell products on behalf of financial institutions.

“I’m not saying that the lenders from corporate [institutions] are telling their people to say, ‘You’re a broker,’” Vickery stated. “That’s not really what’s happening, I believe. I believe that these individuals who are employees of the bank are calling themselves that because it’s easier. It’s easier for the consumer to understand.”

The Canadian Bankers Association declined the Straight’s request for an interview on this topic.

The Mortgage Brokers Act does not apply to employees of insurance companies, savings institutions, members of the Law Society of B.C., or any person acting for the government or any of its agencies. Samantha Gale, manager of mortgage broker regulation with the Financial Institutions Commission, told the Straight by phone that her organization has taken action in response to concerns over unlicensed advisors calling themselves mortgage brokers.

For example, Gale said, people who are not employees of a financial institution—such as independent contractors who place mortgages with third-party lenders—are not exempt from penalties under the Mortgage Brokers Act. If they call themselves “mortgage brokers”, they could be penalized if they’re not licensed as mortgage-development brokers. For a first offence under the Mortgage Brokers Act, the maximum fine is $100,000 and individuals are liable to imprisonment of up to two years.

“We only have a handful of people registered as mortgage-development brokers,” Gale said. “So my suspicion is that there is a lot more people out there working in this capacity for savings institutions that aren’t registered as mortgage-development brokers.”

In November 2009, the Financial Institutions Commission issued a bulletin stating that it now has the power to issue a cease-and-desist order. However, Gale said that her office has not received complaints about specific individuals, which is why there haven’t been any enforcement actions. “We have responded to the problem and we have a process,” Gale said. “The problem is not getting the complaint information.”

October is Mortgage Education Month, and to coincide with this, the MBABC is holding a series of seminars across the province. For more information, see www.findabettermortgage.ca

Many Canadians are having difficulty meeting their savings goals with 38 per cent indicating they are unable to save, either because they have nothing left over after paying bills (30 per cent) or because they are impulse spenders (eight per cent), according to the RBC Savings poll.

More than half of Canadians find it difficult to achieve their savings goals (57 per cent), be disciplined in their savings habits (55 per cent) or find it daunting to set up a program to ‘pay yourself first’ (51 per cent).

With more than a quarter reducing the amount they are saving (27 per cent) and a further one-in-five (19 per cent) indicating they have stopped saving altogether over the past two years, only a small minority (12 per cent) of Canadians have managed to increase their savings.

“Our clients tell us that one of the main challenges to saving is paying yourself first – being able to put aside money before it gets spent,” said Maria Contreras, product manager, Savings Accounts at RBC. “We advise our clients to start slowly by setting aside small amounts. Starting by setting up a separate, dedicated savings account and an automatic saving program with a small amount each week from your paycheque can go a long way in helping you reach your savings goals.”

When it comes to savings habits, approximately one-third (33 per cent) of Canadians diligently save by making regular contributions to a savings account, while a slightly smaller proportion (29 per cent) only save from time to time.

The most common reasons cited for saving money are to create an emergency fund (47 per cent), followed by vacation/travel (35 per cent), but priorities vary by age group. The RBC poll found that young adults aged 18 to 24 favour travel (47 per cent) as a reason to save, followed by saving for home purchase/renovation (36 per cent) or a car (26 per cent). Saving for a home purchase/renovation is equally high among those aged 25 to 34 (36 per cent).

“You can’t make wise saving decisions without taking a good, hard look at your budget – specifically, how much you earn versus how much you spend,” added Contreras. “Once you’ve tracked your monthly budget, it is important to thoroughly examine your spending habits in order to make informed decisions and to reach your savings goals.”

To support Canadians in achieving their savings goals, RBC offers a variety of budgeting tools including:

• the Spend-o-meter tool – determines where exactly your money is being spent.
• the Emergency fund calculator tool – establishes how much money you should consider for an emergency fund.
• the Easy budget tool – examines your income and how much money you have left after necessary expenditures.
• the myFinance Tracker tool – creates a set budget and tracks your spending habits.

For more resources to help Canadians start saving and achieve their savings goals, visit www.rbc.com/savingsspot.

The savings survey was administered as part of Express Online, TNS national online omnibus survey. Fieldwork was conducted between August 12 and 16, 2010. In total, 1,121 completions were achieved.

While plenty of individuals live from paycheque to paycheque, most consumers know they should be saving money and reducing debt. The recession has drummed that concept into everyone’s head as people have watched their neighbours and friends lose jobs and sometimes their home. Many people say that money worries keep them awake at night, but that doesn’t necessarily translate to imminent bankruptcy. How do you know when you are truly teetering on the edge of a financial disaster versus simply needing to do a little belt-tightening?

Here are nine signs that indicate you are heading for trouble and may be unable to pay your mortgage in upcoming months:

1. Late Fees

If you missed a payment or let your bill go past due because you didn’t have the money to pay your mortgage or another bill on time, you need to re-evaluate your budget. Not only does this indicate an imbalance between your income and expenditures, but it will also ruin your credit score, potentially causing your creditors to increase your interest rate.

2. You Can’t Pay All of Your Bills

Every month, you must decide which bills to pay and which bills to ignore. A lot of people opt to pay their credit card bill to stop harassment from the credit card company and to make sure they have available credit. But it is far more important to pay the bills that protect your home first. Always pay your mortgage first so that you will have a place to live. Next, pay for your car so that you can get to work and keep your job.

3. Making Minimum Payments on Credit Cards

In your mind, paying the minimum due on each bill may mean you are keeping up with your financial commitments, but financial experts know that minimum-only payments are a key indicator of financial distress. While this may mean that you carry too much debt, this also means that all your income is barely covering your spending. Take a careful look at your mortgage payment, other debts and your income to get back on track. Paying only the minimum on credit cards will extend your debt for years and amass expensive interest payments.

4. No Emergency Savings

While amassing six to twelve months of funds to cover you expenses, as many financial planners now recommend, may be a monumental task, every homeowner should have at least one month’s worth of expenses in the bank. At the very least, you need to have enough money in a savings account or a money market fund to pay your mortgage for one month if your income drops or disappears. If you cannot save that much money you need to seriously evaluate your overall household budget.

5. You Can’t Afford Maintenance

Your home needs to be painted and your dishwasher broke two months ago. If you are ignoring basic maintenance because you cannot afford to buy paint or call a repairman, this is a significant indication that you are in financial trouble. Not only does this show that you don’t have any emergency savings or a home maintenance budget, but this will also reduce the value of your home.

6. Reduced Income

Money is already tight and now your work hours have been reduced or you have been laid off. If meeting your monthly budget depends on every dime you earn, then even a small reduction in income can be a disaster. Search for a new job or a second job and, at the same time, start slashing your budget as much as you can.

7. Using Credit or Cash Advances to Pay Bills

You are using your credit cards or, even worse, cash advances on credit cards to pay other bills such as a utility bill or to buy groceries or just to have cash in your pocket. This is a strong indication that your spending is outpacing your income and it is extremely expensive. You need to put yourself on a debt management program or perhaps meet with a credit counselor to straighten out your finances.

8. Using Your Retirement Fund

You have borrowed money from your retirement account for your mortgage payment or other debt. This could seriously jeopardize your future financial security.

9. You’re Maxed Out

One or more of your credit card balances has reached or, worse, gone over the limit. If you are transferring your balances to new accounts in order to avoid paying the debt, this is a sign of a financial imbalance. If you are applying for new credit cards because your other cards have reached their limit, you are in serious danger of a financial meltdown. While you may be making your mortgage payments just fine, if you cannot control your use of credit cards it can be an indication that housing payments are too high.

While these financial woes can mean that you cannot afford your home, they may also be a sign that your spending is out of control. For most people, the mortgage payment is the largest monthly bill, so they often assume that the size of their mortgage is the problem. If your housing payment fits into that budget but you are having difficulty making your payment, then the issue may be that you have taken on too much other debt. Whether the problem is your mortgage or your other debt, you need to find a way to reduce your spending and/or boost your income before the situation gets worse.

The Bottom Line

Handling financial problems is never easy, but the first step is always to know what you owe. Solutions can only become clear once you have every bill written down with the amount owed, the monthly payment and the interest rate you are being charged. Pencil and paper work just fine, or you can create a spreadsheet or invest in some personal finance software. The important thing is to know where you stand so you can create a plan that will get your money under control.

Interest rate hikes appear to be on the back burner for the foreseeable future after Bank of Canada governor Mark Carney said Thursday that overstretched households and weak U.S. demand would crimp economic growth in the coming months.

At a speech in Windsor, Ont., Carney said Canadians should brace for months of “modest” economic growth, acknowledging this will be reflected in the bank’s revised forecast to be released Oct. 20, in which third- and fourth-quarter estimates would be lowered. Any additional increases to interest rates in this environment would warrant “caution,” he added.

The remarks reinforced a growing belief among Bay Street traders that the odds of another rate hike this year were dwindling to nearly zero. Plus, data released Thursday indicated the economy contracted in July by 0.1% from June levels, the first monthly decline in almost a year.

Economists said Thursday’s speech and the GDP report point to a central bank that’s done with rate hikes for now.

“Mr. Carney is saying he’s willing to keep interest rates low for a while,” said Avery Shenfeld, chief economist at CIBC World Markets, adding the central bank is likely to stay on the sidelines until mid-2011. “Rates at these levels are stimulative, but perhaps we need that.”

In remarks to a Windsor business luncheon, Carney painted a portrait of a recovery that has lost momentum, and suggested the slowdown could be attributed to domestic factors — namely, consumers dragged down by their bloated balance sheets.

“Investment in housing has outstripped their total savings for over nine straight years. . . . This cannot continue,” Carney said.

The recovery’s early spurt, highlighted by annualized quarterly growth in the 5%-plus range, leaned heavily on people capitalizing on low interest rates to buy homes and consumer goods. “The limitations of this reliance are becoming evident,” Carney said, warning it appeared “unlikely” private consumption would be bolstered by further gains in housing prices.

Statistics indicate the ratio of household debt to disposable income hit a record high of 146% in the first quarter of 2010. But recent soft data on retail sales and housing activity suggest consumers have run out of steam.

Michael Gregory, senior economist at BMO Capital Markets, said the implications from household debt on growth represent the newest wrinkle in the bank’s outlook.

When it last raised rates on

Sept. 8, the central bank cited “exceptionally stimulative” financial conditions. But Gregory said the bank believes those conditions may be offset by an “inability or the lack of desire of consumers” to take on more debt.

Carney also called on federal policy-makers to “remain vigilant” about keeping household debt in check. Earlier this year, the federal government tightened rules to make it tougher for new homebuyers to get a mortgage following a series of warnings about the possibility of a housing bubble.

As you tuck into the organic, range-fed turkey with all the trimmings this weekend, you can give a quiet, low-key, typically Canadian thanks for living in this quiet, low-key country. Sure, unemployment remains at high levels and the economic recovery is slowing. But Thanksgiving 2010 will be a good one, relatively speaking, for the great majority of Canadians.

Having spent last week in England — my second visit there in a month — I can offer up my own quiet thanks for being able to return to this country, which some English friends refer to as “the Great White Bore.” The dwindling number of British Christians who still attend church have recently been staging harvest festivals, their version of Thanksgiving in which rich tableaux of food are presented next to altars, a thanks to their God for nature’s bounty.

This year’s celebrations just happened to coincide with the new government unveiling plans for a festival of cuts that eventually might carve back government spending by a massive 40%, making for a bitter harvest of decades of excess.

Compared with Britain and any number of countries, including the United States, Canada is in not-so-bad shape. Of course, you can’t eat relative performance, as the Bay Street saying goes, only the absolute variety. Yet most of us will be able to sit down to a lunch or dinner this weekend that finds us in finer fettle than we might have hoped at Thanksgiving 2009, with the unemployment rate down in the past year, house prices staying firm against the odds, the stock market around a 52-week high and government budget deficits beginning to fall as tax revenues rise.

Just this week, the International Monetary Fund forecast Canada’s economy to grow 3.1% this year and 2.7% in 2011. Though those numbers are down from July projections of 3.6% and 2.8%, respectively, and are not typical of an economy in the early years of recovery, they are respectable given the even slower comeback for the United States, and remain “above potential,” according to the IMF, a circumstance that has us leading the G7 nations, however modestly.

Nevertheless, while most of us are giving thanks this weekend for our good fortune in finding ourselves in this particular corner of the world, some of us can’t help but wonder what we might be offering up thanks for a year from now.

One of the things missing from this recovery and something many of us savers of a certain age will be hoping for by next Thanksgiving is a rise in yields on fixed-income investments. Though the Bank of Canada has raised its overnight rate twice to 0.75% in recent months, GICs and the like are still paying the square root of squat.

Unfortunately, the decelerating recovery here and in the United States will likely put the BoC on hold in the months ahead. While it might seem selfish to wish for a more substantial interest rate increase, such a rise would signal an improvement in the economy and for economic prospects. The BoC and governor Mark Carney would like nothing more than to have to raise rates from their historic lows to guard against a rise in inflation, but will do so only in a substantial way if the U.S. economy shows stronger signs of recovering from its Great Recession.

Meantime, conservative investors – twice bitten by the stock market in the past decade and still shy of getting back in – will be monitoring the progress of equity prices, wondering whether it’s too late to begin buying or to buy more.

That question may be the centrepiece of some Thanksgiving table talk this weekend. Years ago, our Thanksgiving weekends were spent at the family cottage, where parlour games around the dining table were side orders to the lashings of food and drink. We played Scrabble, Monopoly and all manner of card games.

This year, your parlour game might consist of making forecasts for Thanksgiving 2011, writing them down and seeing where they stand a year from now.

I make the following predictions for a year from now: the S&P/TSX composite index will be around where it is now, or a little lower, as earnings advances become scarcer in still-struggling economies; interest rates will be a little higher, but not much; Canadian house prices will be 5% to 10% lower; gold and other commodities will hold their value as the U.S. dollar continues to weaken and emerging economies continue to grow; the loonie will be modestly over par against the greenback; and, finally, the Toronto Maple Leafs will once again have fans fantasizing about making the playoffs and winning the Stanley Cup.

The Bank of Canada raised its benchmark interest rate for a third consecutive time on Wednesday and sounded surprisingly hawkish despite predicting a more gradual than expected economic recovery.

The central bank nudged its overnight rate target up 25 basis points to 1 percent and, contrary to most economists’ expectations, did not signal a pause for its next decision in October. It said rates remained “exceptionally stimulative” but kept all options open due to doubts about the U.S. and global recoveries.

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” it said in a statement.

The Canadian dollar jumped to a session high against the U.S. currency, touching C$1.0369 to the U.S. dollar, or 96.44 U.S. cents from C$1.0486 to the U.S. dollar just before the announcement.

Short-term money market rates and bond yields also jumped. The yield on the rate sensitive two-year Canadian government bond rose to 1.377 percent from 1.266 percent just before the news.

“Generally it’s a very upbeat statement, it’s a little more hawkish than I anticipated,” said Derek Burleton, Deputy Chief Economist at TD Bank Financial Group. “This will cast some uncertainty about whether the bank will pause at the next fixed announcement date.”

The Bank of Canada has raced ahead of its Group of Seven peers in raising borrowing costs after the global financial crisis. It lifted its policy rate on June 1 from an all-time low of 0.25 percent and raised rates again on July 20.

The U.S. Federal Reserve, by contrast, has raised the prospect of further easing and counterparts in Europe and Japan are likewise far from ready to tighten monetary policy.

CLOSE CALL

 Markets had seen Wednesday’s rate hike as a close call because of rising fears of another U.S. economic downturn. Twenty-five out of 41 forecasters in a Reuters poll had predicted a hike. Most analysts also expected the bank to hold rates steady in October and December and possibly longer as it tracks developments elsewhere.

 After the rate announcement, markets were pricing in an about a 68 percent probability the bank would leaves rates unchanged in October based on yields on overnight index swaps, according to a Reuters calculation.

 “As it stands right now, our official call was for the Bank to remain on hold for the next few meetings, but that’s obviously something we have to review in light of the statement and as economic figures roll in the weeks ahead,” said Doug Porter, deputy chief economist at BMO Capital Markets.

 The Bank of Canada said the 1 percent rate is “consistent with achieving the 2 percent inflation target in an environment of significant excess supply in Canada.”

 The language was similar to that used in its last rate announcement on July 20. But the bank omitted any reference to weighing any further rate hikes “against domestic and global economic developments.”

 U.S. TO BLAME

 It acknowledged that the economic recovery was losing slightly more steam than it had anticipated just six weeks ago. Second quarter growth disappointed at a 2 percent annual rate versus the bank’s 3 percent projection. The bank will revise its official forecasts next month.

 It blamed the weaker economy in the United States, which buys three-quarters of Canadian exports, for the tepid rebound in Canada. High U.S. unemployment is holding back spending by individuals and businesses, it said.

 While exporters may take a beating, the bank sounded upbeat on domestic consumer spending and business investment.

“Going forward, consumption growth is expected to remain solid and business investment to rise strongly,” it said.

 Most recent U.S. data have dampened fears of a double-dip recession but the recovery there is still wobbly, making it uncertain whether the U.S. Federal Reserve will see fit to take further action to drive down already rock-bottom borrowing costs.

 The European Central Bank kept euro zone rates at a record low of 1 percent for the 16th month running last week and extended its program offering liquidity to banks.

The Bank of Japan stood pat on monetary policy on Tuesday but set the stage for possible easing next month.

The number of U.S. homes lost to foreclosure surged in July, as lenders take back more properties from homeowners who have been in default for months on end.

Lenders repossessed 92,858 properties last month, up 9 per cent from June and an increase of 6 per cent from July, 2009, foreclosure listing firm RealtyTrac Inc. said Thursday.

Banks have stepped up repossessions this year to clear out the backlog of bad loans. July makes the eighth month in a row that the pace of homes lost to foreclosure has increased on an annual basis.

Still, the number of homeowners who have fallen behind on their payments remains high, and these borrowers are being allowed to stay in their homes longer. That’s partly because lenders are reluctant to add to the glut of foreclosed homes on the market. They also are swamped with an unprecedented number of defaulting properties and have been overwhelmed by the volume.

The number of properties receiving an initial default notice – the first step in the foreclosure process – rose 1 per cent last month from June, but was down 28 per cent versus July last year, RealtyTrac said.

Initial defaults have fallen on an annual basis the past six months.

The latest data reflect a foreclosure crisis that continues to drag on as many homeowners struggle to make their monthly payments amid high unemployment, slow job growth and an uneven rebound in home prices.

Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures. Initially, lax lending standards were the culprit, but homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures.

Lenders are offering a variety of programs to help homeowners modify their loans, but their success rates vary. Hundreds of thousands of homeowners can’t qualify or fall back into default.

The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis but has made only a small dent in the problem. More than 40 per cent, or about 530,000 homeowners, have fallen out of the administration’s main effort to assist those facing foreclosure.

That program, known as Making Home Affordable, has provided permanent help to about 390,000 homeowners, or 30 per cent of the 1.3 million who have enrolled since March 2009.

Still, RealtyTrac estimates more than one million American households are likely to lose their homes to foreclosure this year.

In all, 325,229 properties received a foreclosure-related warning in July, up 4 per cent from June, but down 10 per cent from the same month last year, RealtyTrac said. That translates to one in 397 U.S. homes.

The firm tracks notices for defaults, scheduled home auctions and home repossessions – warnings that can lead up to a home eventually being lost to foreclosure.

Among states, Nevada posted the highest foreclosure rate in July, with one in every 82 households receiving a foreclosure notice. The number of properties in Nevada receiving a foreclosure warning last month rose nearly 7 per cent from June, but fell nearly 30 per cent from the same month last year.

Rounding out the top 10 states with the highest foreclosure rate last month were: Arizona, Florida, California, Idaho, Michigan, Utah, Illinois, Georgia and Maryland.

Las Vegas continued to be the city with the highest foreclosure rate in the U.S., with one in every 71 homes receiving a foreclosure notice in July – more than five times the national average.

Canada avoided the brutal financial meltdown that plagued the U.S. economy, but there are some red flags that make recovery for this country “by no means a sure thing,” says a leading U.S. economist.

Paul Krugman, a Nobel Prize winner, New York Times columnist and renowned economic pundit, described Canada as “a very calm, very happy story” during the world economic crisis.

Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.

“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.

However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one.

“There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.

“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.”

Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.

“Household debt relative to total income is very high here, not quite as high as the United States but getting close.”

On the plus side, however, Canadian confidence in the financial sector has not been shot, and it is helpful for Canada to have its own floating currency, Mr. Krugman said.

The Bank of Canada, in an economic forecast late last month, acknowledged that the global recovery would slow down as a result of an increased focus on budget-cutting at the household and government levels.

As a result, the central bank trimmed its growth outlook for the Canadian economy to 3.5% this year and 2.9 per cent in 2011, compared with earlier estimates of 3.7% and 3.1% expansion.

The Bank of Canada reported that economic growth petered out in the second quarter of this year, following softer household spending and declining real-estate activity.

In a separate speech on Sunday, Canada’s chief justice also weighed in on the foundation of a solid and sustainable economy, saying that it depends on a strong justice system and commitment to human rights.

“In the short term, a country that violates human rights can appear to be just and experience economic growth,” said Beverley McLachlin.

“But in the long term, instability and the waste of human potential, which are a direct result of a systematic suppression of individual rights and economic freedom, will invariably cause its downfall.”

Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.

“North America’s story is again darkening,” says CIBC’s Chief economist in the latest Global Positioning Strategy report. “We were looking for a material second-half slowdown for the U.S. but as it turns out, it’s already happened.”

Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.

And still ahead is a “further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.

“Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest.”

While Canada is in much better economic shape – it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job – it “cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold,” Mr. Shenfeld contends.

For starters, an interest rate differential of 300-400 basis points would take the loonie “substantially stronger” creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.

Furthermore, the “external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline.”

Mr. Shenfeld doubts that the Bank of Canada “has been shocked enough to forestall a rate hike in September” but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC’s outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.

The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are “lessons learned, we hope,” says Mr. Shenfeld.

“Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening.”

As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.

A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.