More Ideology from our Central Bank

From today's Globe&Mail, Bank of Canada Governor Mark Carney is joining the chorus of voices warning that robust economic growth, which is still just around the corner, will be choked off by high interest rates brought about by heavily indebted governments and a rebounding private sector.

Meanwhile, the markets are tanking, and if my investments are any indication, nervous money is heading back to public debt. To my suspicious mind, there is more than a hint of ideology here. The private sector, and particularly the financial sector are worried about greater government presence in the economy. Given their performance over the past couple of years, this is surely understandable. But as Paul Krugman, among many others have been continually reminding us, there is presently no danger of crowding out, nor will there be until there really is a robust recovery underway -- something that seems to remain a remote recovery. Indeed, as the Globe article noted:

At a press conference after releasing his report, Mr. Carney said the pickup in growth will help reduce unemployment and that he sees “gradual improvement” in the labour market now that the “deterioration has stopped.” Canada's economy lost about 400,000 jobs over the course of the recession, he said.

Still, growth will retreat to 2.2 per cent by the fourth quarter of 2011, lower than the bank's October forecast of 2.5 per cent for that three-month period. Mr. Carney said at his press conference that the “new normal” for economic expansion after 2011 won't be “much north of 2 per cent,” as the population ages and because of subpar worker productivity.

The central bank projected that the savings rate among U.S. households will rise to more than 6 per cent over the next two years from a low of 1.2 per cent in early 2008, before the financial crisis traumatized U.S. consumers.

See a risk of inflation or crowding out here? Neither do I. An overheated economy is a fantasy at this point.