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Our loony loonie was a pointless, destructive detour

From Monday's Globe and Mail

Never trust speculators to determine our economy's fundamental prices ...Read the full article

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  1. Moe Unting from Calgary, Canada writes: This begs the question as to what degree a low dollar inhibit the productivity gains needed to stay competitive, hiding behind currency valuations. Gaining 20 cents on the dollar is not the same as gaining 20% productivity.
  2. stan unknown from Winnipeg, Canada writes: So what your saying is our manufacturing sector is holding us back.
    I don't buy that at all
    Same with Austrailia, and Brazil too.

    I would think the real problem
    holding us back is the continual lack of the US dollar to purchase anything of real value.
    What your saying is our assets and homes are now worth 25% less
    than those in the US. Don't think so...
  3. Jim Q from Halifax, Canada writes: Moe Unting,

    a 20% fall in the value of the dollar is like a 20% fall in the price tag or exports.

    It's all very nice to talk about 'increasing productivity,' but there's only so far you can push that before you start talking about expanding the work-week beyond 40 hours.

    Since productivity is only really the amount of money made per hour, the best way to increase productivity has never been 'work harder' or work longer (you might get a 5-10% increase) but to make more expensive things and export them (you can jump 2-500%.)

    The advantage to the dollar will actually help productivity by making our manufacturers competitive again. And making, say, a $15 000 car for sale at 20% off is still more productive than a service industry job that sells call centre service at a value of $15 an hour.

    When the quality of the product type goes up, 'productivity' jumps.

    This is why a healthy economy needs strong government leadership to ensure that the compnies have the real competitive advantages they need.

    Memo to Harper and his supporters: a 2% tax decrease won't help anyone if the Dollar is overvalued by 20-30%.

    But then, actual leadership has never really been his forte.
  4. J Myers from Dublin, Ireland writes: The Canadian dollar rose against the US dollar because of a lack of confidence in the US currency, and is dropping because people are bailing on the turbulent market and buying up currency, mostly US dollars and euros.

    The loss of manufacturing jobs in Canada is partly due to currency fluctuations, but let's not forget the impact of the unions, and in particular Mr. Stanford's CAW. If they were just a little less greedy, and a little more interested in the well being of their members and the industries that employ them, rather than promoting their own interests, perhaps the manufacturing industry wouldn't be gasping its last breath.
  5. Orest Zarowsky from Toronto, Canada writes: @ Jim Q: You are confusing product quality with productivity. Productivity can be increased in several ways.

    The difficulty being that the most effective and successful - on a long term basis - ways of achieving real improvements all require the owners and management of a company to - gasp, the horror - spend money on new equipment and staff training. Not to mention hire more staff as needed.

    It is much cheaper to defer such 'unwarranted expenses' by forcing existing staff to work lots of overtime. It's even better if the company can get away with not paying for all that overtime. Unpaid forced overtime is a common problem in non-union shops. As is a failure to upgrade equipment and train staff.

    But this sort of productivity 'improvement' is bogus.

    Even worse, a low-priced dollar not only encourages, but enables companies to fail to invest in current equipment, technology and staff training and development.

    The problem here being that as soon as the dollar rises in value, these self-inflicted structural weaknesses become important.

    Cheering an undervalued currency is just as stupid and foolish as the deregulation of the financial system in the US and UK has proven to be. We are already seeing this.

    Oh yeah, depending exclusively on selling raw commodities, as opposed to value added manufactured goods is not too smart.
  6. Billiam Smith from Montreal, Canada writes: Yeah. Car manufacturing is the future of the Canadian economy. Especially with a recession in the U.S.

    Keep it up Jim - the Worker's Paradise is just around the corner!
  7. Barry from Ontario from Canada writes: The rise of the looney had it's advantages. First of all, it shone a harsh light on those companys that couldn't compete on a level playing field; the ones that didn't use the 65 cent dollar to invest in their competitive future. Secondly, it gave ordinary Canadians some buying power with their hard earned dollars. Canadian retailers could no longer justify price diparity because 'our dollar is weak'. The problem is that a currency drop is an instant 'fix' that masks underlying issues. I'd like to know how we went from 'Buy Canadian' to 'Buy Canadian - if it's cheap'. Will tourists only come to Canada if they can get a deal? If so, what does that say about our tourism industry and what we have to offer? The most visited tourist destination (by country) in the world is France, has been for years, and it's not a cheap trip. If the world will only buy our manufactured goods because they're cheap, what does that say about the quality and innovation of our products? Germany is another expensive country that just happens to be leading the world in exports. How come? I don't subscribe to Mr. Stanford's unionist 'lowest common denominator' policy of keeping our dollar low to subsidize industry. If a manufacturer needs a 20% break to become competitive then they should drop their prices.
  8. Allan b from Canada writes: I never could figure out why canada could not compete on a world market unless our dollar was undervalued. Its all BS if you ask me. We buy all kinds of stuff from the states with our money making it 20% higher and they don`t seem to have trouble selling and or marketing to lus or other countries.
  9. David Stevens from MONTREAL, Canada writes: ALLAN B: I never could figure out why canada could not compete on a world market unless our dollar was undervalued.

    here is the answer.

    We are a barely industrialized country. We are a third world country that makes it into the G8 strictly because of our vast size and resource wealth.

    We sell our wood and buy back furniture, we sell our iron ore and buy back cars, we sell wood pulp and buy back printed magazines. Now they will build pipeline to send crude oil from Alberta to Florida for processing.

    In Kuwait the average income for a citizen is $100,000 USD. We have more oil than they do.

    They must keep our dollar low so we work cheaper, have less investment power and stay the unquestioning resource stockpile that the US and the world wants us to be.

    If I were prime minister I would do one of tow things. (depending on hop upset out WTO masters became.

    I would have a 'no export without transformation' law. ie now raw wood pulp just paper, no raw minerals just metals, no grain but flour and related products, no crude but gasoline and plastics etc

    or at least I would subsidize transformation industries that add value to our resources. Canada could be a wealthy country not just a country with a wealth of resources primed for exploitation.

    Mexico never made its resources part of the free trade deal. Our NAFTA deal even opens our water to exploitation if any province does so. From bottling operations to pipelines. NFLD almost did us in a few years ago by opening the tap.

    When our dollar is 80ยข it means that car, that computer and that fridge are that much more expensive. Canada should be the equal of the US not its inferior. If the tiny island nation of Japan can compete with the meagre resources it has then so can we.
  10. Lucas McCain from San Francisco de Macoris, Dominican Republic writes: Thomas Jefferson one of the founding fathers of the US made the following comment in 1802.....

    'Banking institutions are more dangerous to our liberties than standing armies.

    If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the
    continent their fathers conquered.'
  11. David Simon from Canada writes: The CAW which represents workers at GM, Ford and Chrysler is against foreign takeovers?
  12. E B from Canada writes: 'According to the experts at the Organization for Economic Co-operation and Development, the underlying fair value for our dollar (based on purchasing power) is around 80 cents (U.S.).'
    I think the time has come to stop this B.S. The credibility of our financial experts has been shattered by the events of the past few months. The emperor has no clothes! Our dollar is supposed to be worth 80 cents compared to the curency of a Country that pretty soon won't be able to service its national debt and whose financial system has become comatose? Who are you kidding Mr. Stanford?
  13. D K from sadcity, Canada writes: A lower dollar only help with the labour costs in Canada. Alot of finished components that factories here use are made in the U.S. Those finished components now got 20% more expensive.

    A lower dollar also does not help productivity. When it was at .65 to the American dollar, there was no incentive for factories in Canada to reduce headcount and become more productive.

    I believe Canada should have locked in with the U.S. dollar at around .90 ( -.05). Everyone's house value and assets have now been reduced versus the American market in one single month.
    If the looney is undervalued, why do we let be so? Locking in with some wiggle room will help us tremendously and we wouldn't have suffered from the Dutch disease as we have.
  14. Quinn Barreth from Canada writes: 'One of the many lessons to learn from the current mess, therefore, is that we shouldn't trust speculators to determine the fundamental prices of our economy. We should make those decisions ourselves.'

    Shockingly, a union economist is in favour of nationalisation of something.
  15. little bear from Canada writes: I would like to know who is the speculator?

    Is he referring to investors?

    Is he referring to ETFs?

    Is he referring to commodity traders?

    Is he referring to money traders?

    His views sound awfully simplistic to me.
  16. bill williams from Canada writes: -

    I agree with most of what Stanford has to say. I would go further: This country -- if we are a country -- needs a mechanism for the progressive taxation of commodity exports. If the price of oil soars our C$ goes up ... Fine! But we need a way of turning that windfall into the source of revenue that the country can use to increase investment in infrastructure and education that gives our other sectors an advantage too. We're going to wind up with the age of fossil fuels over and nothing to show for it. In fact we're experiencing a little lab demonstration of that right now. Is there some point at which we get smart about this?

    -
  17. Vote NDP in the next federal/ provincial election. from Toronto, Canada writes: Mr Stanfeld is completely correct about what's happening to the Canadian economy. There is no economic justification as to why our loonie is rising so high and so quickly. Also those hedge funds and speculators are the ones causing this economic ruin with their nice dry-cleaned suits yelling to the top of their lungs causing the loonie, oil and commodities to overvalue so much that its damaging to the framework of economics. For example I recognize that demand and supply for oil is tight and prices rise, but when prices rise too quickly and too high then you have to wonder if economics is working here.
  18. Morgan in the Wilderness from Canada writes: Sure. More government is the solution. After all, our successive governments have done such a wonderful job with healthcare, resource management, and discretionary spending.
  19. Ballin Munson from toronto, Canada writes: Typical leftish position. I am sure the next paragraph would have reccomended high tarrifs, with government support and investment in 'high value add' products. All this so Canada could sell, say stereos to France.

    The relality is that unless we do make a transition to more value add, high wage union jobs (except in the pyblic sector) are in decline.

    Switzerland prospers the higher in value it currency goes, but then they have a centuries old tradtition of value, etc. It will take a long time for Canada to find its' role (beyond resources, or being the cheap assembler of US autos). Trying to excessively regulate the value of the currency, or pick, and protect winners is not the way to go.
  20. Squinter 1 from Hilltop, Canada writes: I seldom agree with much Mr. Stanford has to say, but this article had some intelligence to it for a change. Other than the usual call for government intervention to manipulate the currency (about as useful as, say, being opposed to gravity), the point that Canada is better off with a discounted dollar is correct.

    What is the best rate? I'm not sure, but the 90/90 rule ($0.90 dollar, $90 oil) looks like a sweet spot for our economy.
  21. D W from Switzerland writes: ''... we shouldn't trust speculators to determine the fundamental prices of our economy. We should make those decisions ourselves.''

    OK, quick now: how much is the Cdn$ worth?
  22. Gary Dare from Portland, Oregon, Canada, writes: J Myers writes, '... buying up currency, mostly US dollars and euros.' Actually, the US$ has been rising against the Euro and almost every other currency save the Yen. Some people have pointed out to large hedge fund unwindings as one of many reasons. Another is that large US multinationals are repatriating profits in face of the credit crunch, either cash stashed abroad to avoid US tax or lending by its foreign entities (e.g., Xerox Canada's loan to parent Xerox Corp.). That bids up US$ when the foreign cash is in other currencies.
  23. Randal Oulton from Canada writes: '... we shouldn't trust speculators to determine the fundamental prices of our economy. We should make those decisions ourselves.'

    Good luck with that, eh? Such an ideological approach has never worked for real currencies.
  24. Building an Ark from Eastern Slopes, Canada writes: Vote NDP in the next federal/ provincial election. from Toronto, Canada writes:

    Isn't it time to change your handle, the next election was just held, and ranting against business did not get Layton the Prime Minister's office. Like the Cons who had to give up 'the New Government' the NDP and the 'ether like economics' of robbing business that will somehow help the middle and low income class - now Class how do you spell financial ruin - v.o.t.e.n.d.p.! Well done!
  25. Ron Sinclair from Mississauga, Canada writes: As a guy that spent all his working life in various Canadian manufacturing enterprises, including a UAW plant on the mangement side of the table, I would have to say Jim is bang-on with his assessment of where the $ belongs compared to the US. Politics be damned, and I am a conservative, dollar parity is a job killer for Canada even in competitive plants. It is far easier to buy from China or other cheaper off shore locations. Lets hope we can get some of the jobs back.
    Too bad it is taking a financial disaster to make it happen.
    With the way it is going on the commodities side, the same thing is going to happen there.
  26. Peter Lucas from koloa, Canada writes: bill williams, the provinces, not Canada, own natural resources. It's the canadian way, eh.
  27. bill williams from Canada writes: -

    Peter,

    I know, that's why the provinces get royalties. Royalties are a compensating award for yielding something that you own. But taxing commerce is done at all levels of government. You don't have to own it to tax it.

    -
  28. Warren Asweater from Canada writes: Stanford's lament "Our real fundamentals — our ability to efficiently produce high-value goods and services — were crumbling" reminds me of a kid who killed his parents and then pleaded for the mercy due to orphans.
  29. EB Lafontaine from Zanzibar, Tanzania writes: A low dollar is simply delaying one of two results for Canada:

    1. A massive, sustained and therefore unlikely infusion of investment in REAL productivity growth or

    2. A continued decline to second-tier economy status, where we can fight it out as hewers of wood and drawers of water with the likes of Russia, Brazil and Indonesia.

    The low dollar has for decades propped up a cost advantage for Canadian exports while relieving Canadian business from investing in real productivity advances, coddling low-productivity Canadian labour in the process.

    OECD statistics (http://stats.oecd.org/WBOS/) show that our multi-factor productivity growth between 1985 and 2006 was 0.5% per annum, half the US rate and not even as good as Italy. Compounded over a long period that means our inefficiency is making us hopelessly uncompetitive.

    It's easy to see where Mr. Stanford is coming from, though, since those same statistics show that from 1985 to 2006, Canadian labour input grew 1.5% per annum, surpassed only by Ireland.

    The Stanford Formula seems to be "low dollar, more jobs, less productivity". If we don't invest in productivity, with consequent growth in the higher-value, higher-paying jobs that Mr. Stanford would no doubt like to see, we'll be fighting with China to keep jobs in Canada.

    The low dollar contributed to this mess and Mr. Stanford would like it as part of the cure, too. Bad idea.

    Try to keep the dollar on par with the US dollar and Canadian business and labour will be forced to become truly competitive.

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