The Bank’s power to bring down the dollar is unquestioned

Cahier spécial : A policy vision to escape the race to the bottom


Intervene to Reduce the Canadian Dollar Exchange Rate (1)


As described in earlier sections of this paper, all Canadian non-resource export industries have been seriously damaged by a currency that has been driven up (by speculative pressures fixated on our petroleum exports) nearly 25 percent higher than its fair value (according to relative costs and prices).

This imposes, in essence, a 25 percent penalty on any value-added in Canadian operations, in industries (like auto) for which exports are a major or dominant source of demand.

This punishing cost burden cannot be tolerated without a constant drain on Canadian investment, employment, and exports.

There is a naive assumption in some quarters that it will simply “take time” for Canadian producers to adapt to a higher dollar.

Tout à fait d’accord avec lui, il est incroyable comment nos décideurs ne connaît rien en réalité économique. Alors, il parte avec de belles théories, mais le résultat empirique démontre tout le contraire.

But how, exactly, would this adaptation occur?

·         Nominal wages might be cut in an attempt to offset the 60% appreciation of the currency in the last decade – as Caterpillar demanded, for example, in its recent confrontation with its workers in London, Ontario (see sidebar: Don’t Get Caterpillared!). This is neither fair nor effective.

·         Companies might attempt to improve their productivity to be able to stay competitive even with artificially expensive relative costs.

Tout à fait exacte, tu as déjà assez de difficulté à survivre dans une économie saine, si en plus l’argent est surévalué ou sous-évalué par la manipulation monétaire, tu t’en sors pas.

·         This has not been manifested in the form of business capital spending (which has been weaker, as a share of GDP, than when the Canadian dollar was undervalued – likely because with an overvalued dollar there is less rationale to locate new capital spending in Canada in the first place).

·         Innovation in products and processes might help, yet companies would still face an incentive to relocate production of that more innovative activity to a location with lower apparent production costs (due to foreign exchange effects).

Canadian dollar far above value

So long as the Canadian dollar remains far above its fair value due to speculative and resource driven factors,

·         Any other industries which sell their output to international markets including manufacturing, tourism, and tradable service sectors  

Will face an uphill


Theory freely floating exchange failures

Souvenez-vous quand je vous ai dit: ce n’est pas de savoir, si tu es un bon entrepreneur (exportation) qui est important, c’est de savoir si tu es dans la bonne équipe.

À quoi ça sert de travailler comme un imbécile, d’améliorer ta productivité et tout le tra la la, quand ton voisin du sud imprime de l’argent de Monopoly, dévalue sa monnaie, donne des subventions à outrance et payes son peuple à 10$ de l’heure.

Oublie cela, c’est peine perdue et c’est pour cette raison que les entrepreneurs canadiens hésitent à investir, car l’économie est rendue totalement dysfonctionnelle.

Contrairement à tous ceux qui font du bruit (politiciens, économistes, chroniqueurs) avec de belles paroles, il y a une différence majeure, c’est notre argent non la leur.

Qu’on attaque les vrais problèmes au lieu de faire juste du bruit, entre temps comme il suggère, à défaut de régler les vrais problèmes, qu’on fasse comme tous le monde imprimons de l’argent.

While in theory the global financial system relies primarily on a system of freely floating exchange rates (which are supposed to equilibrate real outcomes in goods and capital markets), in practice governments and their central banks regularly intervene in currency markets to influence currency outcomes.

Many countries have adopted such strategies in recent years, with the goal of achieving exchange rates that enhance the competitiveness of domestic industries.

·         China’s exchange rate is tightly regulated, through a state-managed banking system, to maintain that country’s super-competitiveness in global markets despite an enormous trade surplus.

·         Other countries (including Japan, Brazil, Switzerland, and others) regularly intervene through central bank asset purchases and sales to manage exchange rates.

·         Even the U.S. could be said to be pursuing a “cheap dollar” trade strategy (in support of the government’s official goal of boosting U.S. exports by 50 percent) through its unconventional “quantitative easing” measures. The depreciation of the U.S. dollar in recent years has been a crucial reason for that country’s renewed competitiveness in international manufacturing trade. In the

·         European case, depreciation has been achieved accidentally through the impact of the enduring Euro-zone debt crisis. The outcome, nevertheless, is a further boost to the competitiveness of manufactured goods from Germany and other Euro-zone exporters; given Germany’s enormous trade surplus (second only to China), one would expect its currency to appreciate, but in fact the reverse has occurred.

In short, exchange rate fluctuations have played a dis-equilibrating role in world trade.

It is not realistic for a country to step back from this fray and pretend that markets are working in an efficient manner.

Il a tout à fait raison, il l’appelle cela une économie déséquilibrée, moi, j’appelle cela, une économie dysfonctionnelle, et on est exactement sa même longueur d’onde, il est tout à fait irréaliste qu’on puisse gagner dans ce genre d’économie quand les dés sont pipés.


Bank of Canada interventions.

So long as the Canadian dollar is in excess demand (whether for purposes of real trade and investment, or more likely as a result of speculative demand by financial investors), there is no limit on the Bank of Canada’s ability to supply more dollars to the market in order to reduce appreciation.

That role can be played through the Bank’s intervention in traditional asset markets. It could also be pursued through unconventional methods (such as the quantitative easing strategies pursued by the U.S., U.K., and European central banks).

The Bank’s power to bring down the dollar is unquestioned

Il faut arrêter ‘D’être plus catholique que le pape’, l’ensemble des pays industriels manipulent leurs monnaies pour améliorer leur compétitivité, US, UK, Japon, Corée, Chine, Brésil …

Nous les caves, sur de beaux principes morals, on refuse de le faire, entre-temps les compagnies se délocalisent ou ferment leurs opérations, ding, ding, on se réveille…

The only debate is whether the Bank should so do, since this strategy would require the Bank to consider other goals in its policy-making other than the single-minded inflation target which has guided its actions for the past two decades.


 

Tables des matières

1.       A policy vision to escape the race to the bottom

Summary :

Global pressures on the industry are more severe all the time

Impacts of a Canadian dollar

we must adopt a new approach

2.       Decline in auto manufacturing employment in Canada

To Hell and Back – Canada’s Auto Industry After the Crisis

Industrialized countries experienced a decline

Preventing plant closures

Government intervention

3.       Automotive trade deficit reached an all-time record of $15.6 billion

Auto  Industry - Free Trade

Canada-U.S. Auto Pact

World Trade Organization

Trade Balance

Mexico

4.       CANADIAN Petro-Dollar

CANADIAN Petro-Dollar

5.       Race to the bottom

Race to the bottom

Donc, à qui profite la mondialisation ?

Les gagnants

6.       Productivity, Investment and Technology

Productivity, Investment and Technology

Productivity

Investment and Technology

7.       Center of gravity is clearly shifting south

Re-thinking Canada’s : A New Policy Vision

And it won’t stop there

We do not accept this grim scenario as natural, efficient, or inevitable.

8.       Free trade theories failures

Re-think Trade Policy

With every other trading partner

Optimistic predictions of the free trade theories failures

Canadian trade negotiators have a responsibility

9.       The Bank’s power to bring down the dollar is unquestioned

Intervene to Reduce the Canadian Dollar Exchange Rate (1)

Canadian dollar r far above value

Theory freely floating exchange failures

Bank of Canada interventions.

10.    Restrict foreign resource takeovers

Intervene to Reduce the Canadian Dollar Exchange Rate (2)

Slowing down resource developments (especially in the oil sands)

Preventing foreign takeovers of Canadian resource assets

11.    Canada back is a lack of political creativity

Conclusion

Willingness by policymakers to play an active role.