Certainly, the risk you're discussing is one that's foremost in our minds and has been for quite some time. The elevated household debt not only poses this challenge about how interest rate adjustments occur, but of course actually represents an ongoing vulnerability of the economy to other shocks, such as a new global recession out in the world. What happens is that high levels of debt act as an amplifier. They make the shock have a larger effect on the economy than it otherwise would.
For example, let's say there was a recession in the United States. The sequence would be that unemployment in Canada would rise, folks would have difficulty keeping up with their mortgage payments, and that would cause bigger cutbacks in spending than we otherwise would have.
We have always known that this would be, if you like, a second-order consequence of the primary objective, which is to get the economy back on track, get the economy back to our 2% inflation target, which means full employment. That is the best contribution that monetary policy can make to ensuring that in the long term, these debts are sustainable and serviceable. The fact is that given the shocks we've been through since 2007....
I remember that in 2008 every country in the G20 cut interest rates very low and had a large fiscal expansion in order to offset the consequences of the global recession. I think, too, this was an unqualified success. It certainly averted what I think we all would be calling by now “the second great depression”. All the ingredients were present.
By 2010, it looked as though we had most of the bad news behind us, so fiscal consolidation began to emerge as a priority in lots of countries, but as it turned out, the world delivered a bit of a slowdown, which progressed, and interest rates needed to stay low longer, so we have these consequences of higher debt.
I just want to assure you that we take this fully into account and will be monitoring how households are reacting to those debt levels and interest rates. It's not a simple arithmetic calculation about what they can absorb. The economy will moderate, compared to the levels we have seen, as this process unfolds.