Wednesday, November 07, 2007

Maybe Dalton should read National Newswatch

Dear, funny Dalton.

He wants the federal government to lower interest rates. (Can the federal government do that anyway?)

Dalton, please read National Newswatch. The article just below yours is the one to pay attention to - Central Bank won't clip dollar's wings - Quote by Bank of Canada senior deputy governor Paul Jenkins:

“We judge that the risks to the bank's inflation projection are roughly balanced, with perhaps a slight tilt to the downside,” he said. “And we also said that we judge, at this time, that the current level of the target for the overnight rate is consistent with achieving the inflation target over the medium term.”

Several economists and currency traders said Tuesday that the central bank is in a difficult position, and that even if it were to cut interest rates by a quarter percentage point, the effect on the Canadian dollar would likely be minimal. One of the chief difficulties is trying to determine how much of its appreciation is due to strong demand for domestic products, and how much can be laid at the feet of the enfeebled U.S. dollar.

But hey. Blaming the feds is Dalton's preferred modus operandi.

As everyone knows, the real culprit is global warming.

* * * *

Update: Even the strategists have given up trying to make forecasts - Globe. Just hang on and enjoy the ride, baby!

Loonie falls this afternoon. Wow! Whatever Dalton wants, Dalton gets! And the Bank of Canada didn't even have to lower interest rates.


Tony said...

Premier McGuinty and others like him tend to make ridiculous statements just for the purpose of scoring political points. It is getting very hard to take him seriously.

Joanne (True Blue) said...

Tony, I'm no economics expert, but you agree that the federal government has no control over the interest rate, right?

Lord Kitchener's Own said...

For the record, the Minister of Finance can (with approval from the Cabinet) give the Governor of the Bank of Canada "a written directive concerning monetary policy, in specific terms and applicable for a specified period, and the Bank shall comply with that directive" according to the Bank of Canada Act. However, it's true that apparently no Minister has ever excercised this authority. It can be done, however.

I'd also note, however (and more importantly), that nowhere in the article is McGuinty actually quoted as saying that the "federal government" should lower interest rates (or that the federal government should do ANYTHING, frankly). The Premier just says that Ontario would benefit from lower rates; that Canada's current interest rate policy is good for some other provinces, but not somuch for Ontario; and that he thinks interest rates should be lowered. It's the writer of the article who characterizes this as calling on the "federal government" to lower interest rates, which I'd say is more likely to be representative of the author's misunderstanding of federal monetary policy and how it works. I see no evidence in the article that McGuinty actually called on the "federal government" to do anything.

All I see McGuinty actually SAYING here is "From an Ontario perspective, we would benefit from an interest rate reduction – something that makes the Canadian dollar less attractive on the international market", and that's totally true (for the record, even being in Ontario, I LIKE the high loonie, so personally I'm glad they left rates alone...). It's kinda part of the Premier's job to advocate for policies that benefit Ontario though, and I'd say that's all he's doing here.

Anonymous said...

Is it just me wondering where McGuinty's been up until today on this issue? Is this just more noise or is he just adding his now over-valued 2 cents so he can eventually cast blame on why he can't pay for his new list of promises, on the feds?

Oh, Joanne, it's not global warming, it's Mike Harris don't you know?

OMMAG said...

Financial genius Dalton McSpendy...

If memory serves ... it would not be the first time that this insufferable boob of a premier has suggested that other parts of Canada should suffer so he can appear to be doing something.

Going further back didn't we have a recession in the 80's to satisfy the wish of Ontario to cool their own inflated economy?
Yep... we did.
Think it's going to happen again?

Not while the rest of Canada is growing !

Face it Ontario's star is on the wane and all the socialist meddling you can imagine will NOT change that. Well at least not without dragging everyone else down with you Dalton.

Hector B. said...

Dalton has learned the essential lesson of political (and organizational) survival: Priority 1 is always name the person(s) who will be blamed. Ontario has been losing manufacturing jobs for a couple of generations to low labour cost countries in Asia and elsewhere, and North Americans are not buying North American-made automobiles. These have little to do with the US$/C$ exchange rate. But he can blame the current federal government for not lowering the C$, as if it's really within their power.

What does he expect Stephen Harper to do: command the U.S. to start its economy?

Lord Kitchener's Own said...

Uh, ommag, I'm pretty sure McGuinty's not the only one who thinks the dollar's too high. I don't, but pretty much every economist I've read since October has been trying (pretty transparently) to talk the dollar down.

As long as we're giving big subsidies to the oil sands project (as they make huge profits negating the need for the subsidies) I don't have a problem with the Premier of Ontario advocating a monetary policy that's in the interests of his constituents. And I say that knowing I'm one of his constituents who WON'T benefit from a lower dollar.

(and again, everyone, McGuinty NEVER called on the "federal government" to lower interest rates. It just never happened.)

OMMAG said...

I'm not trying to carry on en extended debate with you LKO.
I'll point out that the high dollar is symptom of other economic circumstances. I'm opposed to government meddling in economic cycles because history shows that the repercussions of the meddling are usually as much of a problem as the original symptom making it a zero some effort.

Remember that McSpendy was complaining about transfer payments before the latest attention grabber of interest rates and the dollar...and probably will be again.
My overall point is that the Global economics that are driving the issues that face Canadians as a whole will NOT be changed. The narrow view of McGuinty and his like and the fixes they seek will only exacerbate their troubles and cause repercussion for the rest of us.

Joanne (True Blue) said...

nowhere in the article is McGuinty actually quoted as saying that the "federal government" should lower interest rates (or that the federal government should do ANYTHING, frankly). The Premier just says that Ontario would benefit from lower rates;

Well, Bloomberg is saying that he wants the Bank of Canada to lower interest rates, but at least that's a bit more economically savvy. I'd love to see the original quote. Still searching.

Joanne (True Blue) said...

Funny but CBC says 'federal government' too.

In any case, I agree with OMMAG. This is a global issue, and one that we in Canada are actually quite powerless to influence.

Lord Kitchener's Own said...


Oh, definitely no need for an extended debate, as I think we are really in agreement here. I don't want to mess with the dollar either (and we can't really anyway, even a rate cut would mostly be ignored internationally), and I agree with most of what you said. However, McGuinty's hardly unique in thinking the high dollar is a problem, and he's also by no means alone in believing that interest rates should be lowered in response. It also seems reasonably clear to me that a lower dollar is in Ontario's interests, and Ontario's interests are kinda the Premier's job.

I don't really see McGuinty's words as much more than an attempt to talk the dollar down (and he can't do more than talk anyway) and frankly, every Canadian economist I've read (hardly a bunch of socialist interventionists) have been trying to talk the dollar down since before it hit parity.

I'm with you though. Leave the dollar alone, and let the market sort out what it's worth.

FYI Joanne, the G&M also referred to him as urging the bank of Canada to cut rates, NOT the federal government. I'm pretty confident now that he never said ANYTHING about the federal government doing anything about interest rates, though I think he probably did urge the B of C to lower rates. Hardly a shocker coming from an Ontario Premier though. I could see a Tory Premier of Ontario trying to talk the dollar down similarly in these circumstances.

Joanne (True Blue) said...

John Tory has got to go:

Conservative Leader John Tory echoed McGuinty's call for an interest rate cut.

When do we get a Conservative party in Ontario????????

Joanne (True Blue) said...

LKO - From the previous article:

Don Drummond, chief economist at TD Bank Financial Group, said McGuinty's call for an interest rate cut isn't likely to sway the Bank of Canada, since the central bank has to take more than Ontario's economy into account.

Swift said...

Joanne, even a Liberal can be right once in a while. Every region of Canada is suffering from the high dollar. The maritimes export fish and forest products. Quebec and Ontario have forestry, mineral and manufactured products that are exported to the US. The prairies export agricultural products, forest products, and oil and gas. BC exports forest products and minerals, plus a little oil and gas. Canadian companies are getting a lot less for what they are selling, and a lot are not selling much at all.

Joanne (True Blue) said...

Hey Swift! I agree that this is having a detrimental effect in many sectors of the economy.

My problem is with McGuinty suggesting that a simple interest rate cut will solve the problem. I think that is a rather myopic POV, considering the global factors at play. Either that or he's simply trying to pass the buck again, rather than try to figure out what the Ontario government can do to improve the competitiveness of the manufacturing sector.

Caveat said...

The Canadian dollar is up because the US economy is in the tank and it hasn't bottomed out yet. The fiasco in Iraq is breaking the bank south of the border.

The Canuck buck is projected to go higher still. I was talking to a financial guy about it today.

It's unnerving but a lot of other currencies are rising, not just Canada's, based on the US dollar's weakness.

Interest rates are already pretty low but it's tough on exporters for sure, especially those that operate in US dollars.

Just gotta ride it out and even if the dollar was low, Ontario would still be declining. You can't have somebody like McGutless at the helm and expect fiscal performance. This goose is out of golden eggs for awhile, I think.

By the way, if he was off by 16% or so in his projections as Christina discussed out a couple of weeks ago, he's already in scramble mode to pay for his vote-buying spree.

Should be fun to watch, alright.

So, when do the clowns get back to work? Has anybody heard?

Joanne (True Blue) said...

Caveat, the 'clowns' return to work Nov. 29, with the throne speech.

Joanne (True Blue) said...

In other news, McGuinty is getting an infrastructure handout from the feds:

Premier Dalton McGuinty says he still doesn't know if the federal funding will go toward the transit plan.

Mmm... Cricket anyone?

Swift said...

An interest rate cut will not solve the problem but it would help a bit. The Alberta ?Tories? are going to help a lot by slowing down the oil patch with their tax grab. Unfortunately that won't have too much of an effect in the short term. However if the Sask party wins tonight much of the oil and gas action could just switch provinces, so the Alberta slowdown won't mean much. Bottom line on interest rates is that Dodge can't figure out that a 7% Alberta inflation rate accounts for almost half of the national rate, and high interest rates are not going to slow the inflation in Alberta. But high royalties or low oil prices could.

Joanne (True Blue) said...

high interest rates are not going to slow the inflation in Alberta. But high royalties or low oil prices could

Interesting, Swift. Thanks. I know you've done a lot of research in this area.

Anonymous said...

The high dollar will hurt Canadian business which is not competitive to begin with. Old School. But on the subject of Dalton, what is his hidden agenda? He won on being incompetent and made no election promises and he is still a commie. What is his hidden agenda?
(real conservative)

Joanne (True Blue) said...

He won on being incompetent and made no election promises and he is still a commie.

No election promises? I'm not sure about that.

Regarding the Commie label, this is rather ironic - Adroit China plays dollar".

Could this be pay-back for the Dalai Lama visit?

Anonymous said...

Bottom line is:
Canada still depends on the US for more than 80% of all our exports. Even with a lower dollar, if the US continues tanking including it's North American made cars (39 B$ loss at GM yesterday) we are going to follow the dive as we have ALWAYS done. Canada is technically just another State in the union.
The North American economy which simultaneously drives the world economy has been on life support for too long already. Bad choices have been made: Relentless printing of US fiat currency artificially supported (Debt purchase) by Asian and other markets so they could in turn kick start their own economy and create their own middle class by selling us their cheap products has come to roost...The credit card is now way over limit...The scissors are already cutting through it's centre...The world is pulling out and abandonning the greenback.

Dark days ahead...
Can you spell D-E-P-R-E-S-S-I-O-N?

Saving grace: Geopolitically, Canada is still in the right spot: Right next to the world mightiess war readiness machine...And we have the oil to make it go...And supplying it to them will not be our choice to make, even if all the socks and sandles of the country decides to reelect a American bashing Liberal government: Make your own conclusions.

Joanne (True Blue) said...

One more saving grace - global warming. Bring it on, baby!

Lord Kitchener's Own said...

The Prime Minister hasn't suggested action as McGuinty has (though his constituency is different) but it's interesting to note that Mr. Harper doesn't seem totally sanguine about the high dollar either.

I think the biggest problem is how fast this has happened. No one's had much time to adjust. I mean, had the dollar hit parity in October, then gone back to say, 95 cents, then back up to $1.05 then dwon a bit etc. I don't think it would be shocking (/worrying) so many people. However, basically, since it hit parity it's been up, up, up.

We'll see how next week goes, but I think we heard a lot of talk yesterday because everyone was freaked out by it going up to $1.10 so rapidly, and also with the Chinese suggestions of a possible shift in their foreign currency reserves (which could have a SIGNIFICANT impact on the U.S. dollar). Today, we know that the loonie retreated rapidly thereafter (or the U.S. dollar recovered rapidly, depending upon how you look at it) but I think $1.10 loonie and China freaked people out a bit for a sec! Interestingly, Sarkozy's comments suggest that Europe isn't thrilled with what's going on either, and people do seem genuinely concerned with the state of the U.S. economy, and it's effect internationally. There are suggestions in the article above that the G7 might coordinate an effort to help the sagging (U.S.) dollar, as people are starting to get more worried. I think next week should be interesting (it'll give us a better idea perhaps if yesterday was an anomoly, or a sign of things to come... ScotiaBank raised it's expectation for the loonie to $1.12 yesterday, so it'll be interesting to see if it settles back down, or starts going right back up again.

What I'd like to see, is perhaps a little less talk about what we should or shouldn't do about the dollar, and a little more talk about what we could do to help make our economy more diversified, and less dependent on the state of our currency, exports, and commodities. I always hated that our economy used to seem to depend so much on a low loonie (and I don't think it ever really did, we were just led to believe that it did!) and I don't think a high loonie should be so worrisome (frankly, I'm thrilled). So what can we do to make our economy less suceptible to these kinds of fluctuations? I'm not suggesting any radical interventions, but frankly, in 2007, a commodity-based export economy with a currency widely seen as a "petro-dollar" is great for this year, and maybe for a decade or two, but we can't live on the strength of a non-renewable resource forever. I'd like to see politicians somewhat less worried about how to talk down our booming currency and more worried about how to leverage our current strength to help ensure our FUTURE strength. As great as today is, I'm just not convinced that a commodity based economy using "petro-dollars" (or an economy and currency that are perceived that way by the global community) is gonna feel so great in 2100. I won't be here to see it, but that doesn't mean I don't think our leaders should be preparing for it!

Joanne (True Blue) said...

Thanks for the link, LKO and good comments.

I guess my main point is that Harper's government is at 'arm's length' from the Bank of Canada, as it should be. If Harper started trying to influence the interest rates, can you just imagine the "control-freak" fear-mongering that would emanate from that?

Anonymous said...

You have good questions LKO. First of all, since Canada has been left leaning for a long time now, we have lost a lot of our self confidence in free enterprise entrepreneurship...Even before Trudopia, Canadians have always been a more moderate, shy, lower self esteem brand of North American to begin with. We have since become too self reliant on the state for job and security. Risk taking is not in our blood. This created a bloated system of regulations and high taxes with the highest per capita government worker ratio in the world. Government jobs do not create wealth for a nation, exports do: Few Canadians understand this.

The low population for such a large land mass does not help either: Expensive road infrastructure for one.
Then, throw in union strangleholds (Look at Quebec).

Just the fact that we can't even process most our own raw materials (Commodities) for export is another problem...Government is too much (By choice) in our hair: Example: Government regulated Hydro Quebec sells power below cost to Alcan so it can compete and be able to sell raw aluminum for export. That would be somewhat OK if we could at least transform some of the aluminum into finish products. Instead, Quebecers pay higher hydro so to create some measly 400 unionized jobs in their north.

In a nut shell, Canada's structure is more like countries in the European union.
We are very much at odds with our closest and main customer: The USA.

Joanne (True Blue) said...

Very thought-provoking analysis, Anon at 10:50. Thanks for that insight.