The prospect of an NDP government remains remote, but the election of an NDP government in Ontario in 1990 seemed impossible a week out as well.
The recent Angus Reid poll, showing the NDP just five points behind the Tories, raises a frightening spectre for anyone with a mortgage.
What would the election of an NDP minority government mean for interest rates?
Normally, it's tax hikes that worry people about a potential NDP government, but there may an equally challenging economic problem.
The markets have made little movement so far, but Doug Porter with BMO Capital Markets thinks "we could see a significant shift next Monday if these polls are remotely accurate."
Already, there is some speculation that the polls are hurting the dollar. During this morning's rally of major currencies against the U.S. greenback, the Canadian dollar was notably sluggish.
It's unlikely the dollar will swan dive immediately if the NDP is elected. There is still a five-cent cushion over parity, and U.S. fiscal policy, oil prices and interest rate speculation tend to be bigger drivers of the loonie's trajectory than politics in the short term.
But some wobbling is likely over the next week, especially if the markets had already priced in a Conservative majority and tougher fiscal policy in their earlier buying decisions. Another round of polls showing continuing NDP strength will only exacerbate that uncertainty.
The real test for the economy would come with an NDP budget.
Markets are notoriously tough on democratic socialist governments, particularly untested ones. Like voters who are wary of conservative governments cutting their social programs, left-leaning governments have to work twice as hard to prove their fiscal-management credentials.
If fiscal policy were further relaxed from the already modest standards of Jim Flaherty, we would likely see markets put real pressure on the dollar and Canadian bonds.
At that point, long-feared interest rate hikes could accelerate, raising borrowing costs for the government and homeowners.
A modest 3 per cent increase in interest rates on a 25-year $300,000 mortgage would cost a Canadian family more than $500 a month or $6,000 a year.
It remains to be seen if Mr. Layton can improve his Ontario numbers enough to efficiently convert his popular support into seats.
But if the NDP really over-performs on Election Day, you might want to think about locking in your mortgage, just to be safe.
Update NDP supporters response to this column has been rather aggressive.
That strikes me as odd, because it seems to basically be the same argument that NDP legend Gerald Caplan made in his retrospective on the Ontario NDP government's challenges with Bay Street, among others.
"Bond traders declared that slashing government programs to reduce the deficit was a prerequisite to Ontario borrowing at competitive rates, even though Ontario's deficit was equivalent to that of Conservative-run Alberta. Suddenly the entire media was fixated on the government's threatened credit ratings, never mind that Ontario had the only Standard & Poor's AAA rating in the country. The Social Credit government in British Columbia, the Conservatives in Alberta and Robert Bourassa's Liberals in Quebec all had lower credit ratings. Yet only in Ontario was the government threatened."
As I said in my article, NDP governments tend to suffer an interest rate premium due to skepticism in the markets. People trust the guys in blue shirts with the books but not health care, and the opposite is true of the NDP. The skepticism of the NDP is particularly strong among the very people who influence interest rates the most: Bay Street.
If the NDP wants to aggressively prove its fiscal bona fides, as Tommy Douglas and Tony Blair both did in the early years of their governments, they can. If given the privilege of governing May 2, that would require a very tight hand on the purse that I have not seen mentioned in Mr. Layton's platform or statements.
This interest rate premium on social democratic governments is unfair and tragic. But dismissing it is unrealistic.