Gary, I do not follow your point that " neutral is just another word for recession." i know the BoC uses the term to describe the rate of interest that would give rise to full employment and 2% inflation. The figure Poloz uses is a range 2.5%-3.5% which means it is just a notional number. Where the number comes from is a total mystery --- someone just made it up. Poloz is very focused on the real rate of interest which in Canada is still negative.And that is why he goes for the neutral rate which results in a positive real rate. The entire industrialized world has negative real rates, so why is he so reluctant to accept.

Poloz lives in Ottawa where there was no huge increase in housing costs. He has no clue how tight housing is the major centres, like Toronto. The market is totally driven by land constraints and not be interest or cap rates. So, housing in Toronto is still very tight and prices are firm and supply is low which accounts for unit sales been off from the highs. It is very expensive to buy or sell in this kind of market ( land transfer taxes and agent fees are about 6% of total costs). With an election coming in Oct, the BoC and Fed govt will likely relent on some of the mortgage rules.

Long bond yields in Canada have no term premia since the demand is strong domestically.Long bonds are in tight supply because the Fed govt uses the short end of the market for most of its financing ( under 3 years )The Fed deficit is low ( 3% of GDP compared to the US's 6% ). Canada has a higher bond rating than the US so issuance is no problem.

Can you point me to the Liberty Street studies?

I thinh the bank should drop this idea of neutral rate. After 10 years where the actual rates are do far below that rate

It is a pipe dream....

In the CIBC report ( not in my article) they have a chart showing that Canadian productivity gains lag behind the US so that is why ULCs are higher in Canada. Business in Canada has to watch its wage rates or face the consequence of pricing itself out of international markets. You are right that Canadian consumption aided by rising asset prices have driven the economy more than anything else, especially in central Canada. Now, that there is a clamp down on mortgage lending coupled with a weakness in resource exports, national income will suffer.

The EU recession will spill over to the UK and to the US. Having one's own currency means that it will adjust to relative swings in its own balance of payments. Not having its own currency means that domestic income will adjust to swings in trade deficits ( this is what happened in Greece). Either way, the adjustment mechanism will take its toll on UK citizens. Already with the threat of no-deal Brexit, the UK is adjusting downward as the pound drops and domestic incomes suffer. Getting out of the EU thinking the UK can chart its own destiny independent of the EU is an illusion.

Totally disagree. Great Britain will become Little England--- an orphan.

I am slowly come to the view that helicopter money is the only way out of this Keynesian liquidity trap. Negative real rates have not worked and QE has not worked. Milton Friedman was laughed at when I was in graduate school but he foresaw this problem

and the need for helicopter money,

I recall Henry Ford's statement that he wanted to raise the wages of his assembly line workers so they can afford to buy the cars they make. I think that concept is lost in the US judging by the fall in real wages. In reference to the trickle down concept, I recall Galbraith saying that give a horse oats and you know what trickles down. He hated the conservative economics theory of growth.

Exactly. There is pressure to ease up on the stress test. But the govt is resisting. All governments do not want to admit they over did it.

You are correct that the US suffers from a weak effective demand, not dissimilar to what Keynes argued in the 1930s ( is that why you kept quoting Will Rogers?). Sadly, the recent corporate tax cut does nothing to boost effective demand. Ironically, stagnant nominal and falling real wages lead to Trump's win, but he and his party have done nothing to reverse that situation. Now, it may be too late given the $1.6 trill. debt that has to be financed by foreign trade partners--- another irony for the nation to accept.

Gary, I fully agree. Central banks want to have real rates at about 2% so that is why they hanker for normalize rates of 4% or better. They cannot stand that we have had negative real rates for a decade and may have to revert to that should the Fed be forced to cut rates.