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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Canada ready to buy $US on weakness

Posted by WARREN MOSLER on October 28th, 2009


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From: Mario Seccareccia
Date: Sat, Oct 24, 2009 at 10:58 AM
Subject: RE: *Canada ready to buy $US on weakness
To: Warren Mosler

Warren,


I was at a conference in Quebec City on the issue of financialisation and I just got back literally during the night because of a nasty storm that caused flight delays last night.

However, the Governor of the Bank of Canada is under a lot of pressure from the export sector to do something about the high Canadian dollar because of the Dutch disease effects on the Canadian manufacturing sector. In fact, I have been invited to participate in a conference organized by the Quebec Federation of Labour and various employers’ associations in Montreal right at the beginning of December on exactly this question of the Canadian dollar.

As you know I stand with the Bank of Canada in defending a floating exchange rate but the Bank is under a lot of pressures from both those on the Right and on the Left of the political spectrum to institute some Chinese-style low (Can) dollar pegged exchange rate! This has been an on-going battle over the last few years every time the Canadian dollar is approaching parity with the US dollar. My position has always been to advocate fiscal (and monetary) policy to keep the economy on its full-employment path and I have proposed interregional transfers to deal with the problem of the Dutch disease. But it is very difficult for them to think in those terms because of their fixation with deficit spending and also because of the high constitutional fragmentation of the country that makes a policy of interregional transfers via the taxation of provincial natural resource revenues a political hot potato in Canada. Indeed, there have been even supreme court challenges from Newfoundland and others over the system of equalization payments because of the inclusion of provincial oil revenues in the formula for calculating the current regional transfers.

In any case, as you can see, given the current downward evolution of the US dollar, this might trigger competitive devaluations much as in the style of the 1930s.

Best,

Mario


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2 Responses to “Canada ready to buy $US on weakness”

  1. Paul M Says:

    So has the race to the bottom began? It seems to me that each exporting country is beginning to realize they need the US/developed Western consumers to start consuming again because their domestic markets just are not mature enough to pick up the slack. Is this where we start to see everything from oil, gold, stocks etc… begining to become cheap again? How ironic it is that our adminstration, despite their best efforts to devalue the dollar, may not be able to stop this force. Imagine what increased federal spending and/or tax cut could do in this environment?

    Reply

  2. Ramanan Says:

    Nice email from Mario.

    Its funny – central bankers seem to think that they can do a lot of gymnastics and put the economy back in track.

    This video called “Bohemian Bankruptcy” http://www.youtube.com/watch?v=w5EFEQ9aY6o says it so well – “anywhere the cash flows doesn’t really matter to me”. Generations of mainstream economists seem to have missed the point that fiscal policy ‘interacts’ directly with people. In graduate school one has so much time to ask deep questions – wonder how they miss the point.

    Reply

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