Wednesday Night #818

The Economy:
The Canadian dollar remains very undervalued. The talk of deflation is not to be taken seriously. Deflation is tied into a decrease in the money supply. In Canada, the money supply has been growing at a rate of close to fifteen percent. This is a leading indicator of continuing growth through 1997-98.
Jacques Clément, our resident central banker, stated that the economy is strong, inflation under control and for the foreseeable future should remain between 1-2%; corporate profits will continue strong and the rate of growth could be 3.5% or higher in the coming year; unemployment down to 8.5%. The Canadian dollar is weakening, trade surplus is lower and interest rates are below those of the U.S. Interest rates will probably rise .5 % by the end of the year.
Auto sales are climbing as people replace their cars with average age of 8 years.
Housing starts are up. Low mortgage rates are leading to purchases of homes. BUT savings rate is 1.5% and people are dipping into savings.
The surplus of the deficit will be apportioned 50% to social services and education, 50% for retirement of debt and tax cuts.
Canadian productivity level is still low, the trade surplus is a result of the decline in the value of the C$. If the C$ rises, will Canadian exporters be able to maintain export levels? In the experts’ opinion, yes, because of the control on inflation.
Where are the markets heading? U.S. will probably go to 8000 within 6 months, the Canadian to 7,500. Watch Brazil and other South American markets for serious problems.

The mining experts agreed on the severity of the pressures on gold prices coming from the sale of gold reserves by central banks of Austria, Switzerland, and the Asian crisis. Low Asian savings mean less hoarding, less jewelry. $400 gold not likely before the next century.
The Bank of Canada holds low gold reserves for the Government and has been selling gold slowly since 1990 in order to avoid hurting prices. Who buys gold? Commercial banks for clients, dentists, jewelers. Companies are cutting back on production. Nobody really knows about gold, an easily manipulated commodity, current production is peanuts compared to stock market capitalization.
Nazi gold
Our ‘Swiss banker’ said that recent developments concerning Nazi victims’ gold stored in Swiss banks have been a public relations nightmare for the Swiss. Accusations are somewhat unfair. The public perception is that the Swiss banks unjustifiably appropriated unclaimed accounts as their own capital. Fifty years ago, $65 million was a large sum, but is not so important today. It is hard to identify the true owners. Individual funds are small and with low interest rates, the Swiss banks did not get rich on the proceeds. However, the Swiss banks appear insensitive to the victims’ survivors.
Frank Kinnelly explained the work being carried out in the Office of the U.S. State Department’s Historian. This office is preparing exhaustive analyses of U.S. relations with neutral countries during World War II. What did Washington know? What did it do? The Washington government was primarily concerned with stopping Nazi efforts to put gold in safe havens. The Nazis used Swiss banks to move gold to pay for strategic materials. These operations prolonged the war. Switzerland was not the only conduit, however. Spain and Portugal collaborated. Countries like Argentina sold strategic materials to the Nazis. These were carried on merchant ships flying flags of Spain, Portugal, Sweden and other “neutrals”.
In his view, given their geographical position and relative size, the Swiss had no choice but to deal with the Nazis during the War. It is their behavior after the War which is at issue. The U.S. and England began negotiations for settlement with the rightful owners of the deposits with the Swiss in 1946. Positions were very far apart. The Allies’ initially took a very strong position, wanting controls established over Swiss trade, but by 1947, growing fear of spreading communism in Western Europe and the onset of the Cold War led them to abandon their position, with the result that settlements arranged under that agreement were minimal.
The release of the report put Switzerland in a very bad light.
The question of how long a safe deposit box in a Swiss bank could remain dormant was raised. The answer was that as long as there is an account open, no time limits are placed on the box. There is no requirement for it to be visited. Should there be a problem of space, the box may be moved to another area, but it will remain unopened.

(Ex-Yugoslavia) Refugee problems in Germany
Former Ambassador and distinguished economist, Mihailo (Misha) Crnobrnja, pointed out that the fall of Communism created many less refugees than had been feared. There are far fewer East European refugees in Germany than there are Turks. Nonetheless, recent news indicates that the German government is looking for a solution to the problem of refugees from ex-Yugoslavia. In principle, following the Dayton Accord implementation, these people should go home.
Where is home? Do they return to their place of origin, to find that none of their ethnic neighbors remain? Do they go to enclaves, thus reinforcing the policies of segmenting the different ethnic groups, creating blocs? The problem is serious.
About half the Bosnian population is displaced. Bosnia is an artificial state according to no less an authority than Henry Kissinger and should be partitioned. This act could have saved many lives had it been done earlier. Now is too late.
The U.S. is attacking obstacles to the Dayton Accord, trying to arrest war criminals etc. but progress is slow. The U.S. and other guarantors of the peace must remain in place, otherwise it is difficult to predict anything less than mayhem.

The Environment
Domestic politics have shaped U.S. policy – or lack of – on greenhouse gasses. The U.S. appears unwilling to confront the problems of global warming. This is discouraging to observers from Canada and elsewhere. The U.S. is reneging on its commitments at Rio. By insisting that developing nations must take the same steps as the developed nations, the U.S. is effectively sabotaging the Rio undertakings. It is important to set examples and reach a consensus on what the poorer, less developed nations can do without requiring them to make terrible choices between improving the lot of their people and adhering to standards that will wipe out many livelihoods.
The U.S. has contributed most over the past 100 years to the Greenhouse Effect (60-70%). Why should U.S. not make at least the same efforts as Europe? Europe takes these issues seriously.
Even if we do not have conclusive evidence of how badly we are damaging our environment, we do know we are doing something wrong.
U.S. industry has lobbied hard for status quo and has prevailed.
Environmental groups have done relatively little.
Demonstrations by students and young people are diminishing.
Young people who in the past have been the most vocal supporters of “Green” policies are now cynical, discouraged, feel that individuals cannot affect outcomes. People ARE making individual efforts and there are many grass-roots organizations (i.e. local recycling efforts, individual consumers making decisions based on packaging, environmentally-friendly products). These individual efforts taken together can make a difference.

Multinational Agreement on Investment (MAI)
In contrast to the considerable awareness and sensitivity to environmental issues among the assembled guests, relatively few are aware of the MAI negotiations at the OECD or what these involve. Dr. Crnobrnja explained that the WTO (World Trade Organization – successor to GATT) covers trade in goods and services, but not investments. Canada, U.K. and U.S. are all in favour of free movement of capital.
Why is something so important kept so quiet by the governments involved? The answer is two-fold. There is a great deal of information on the Internet, including the entire text of the Agreement, but one has to know where to go to look for it. The media, meanwhile, find this a dry and complicated subject, therefore do not report extensively on it.

Back to Québec, Montreal and Westmount
Mayor Bourque not likely to be reelected. Who are the realistic candidates? Frulla, Doré and Lamarre. Doré’s star is declining as people realize that he is laregly responsible for the City’s problems. Frulla has stated privately to one of the guests that she wants to remain as part of the PLQ team and fully believes that they will win the next election. Lamarre is “vieux jeu”. Where does that leave us? Why would anybody want the job given the current situation?
The new arrangement with Quebec virtually places Montreal in trusteeship. Quebec has dictated a reduction of $125 million. This will mean a reduction of $71 million in labour costs must be negotiated. There is a major gap between potential savings and dictated reduction. Bourque calls it “historic” other municipal politicians view it in different terms for the first time in history, Quebec has taken over the Metropolis!
See Gazette “Merger Plan doesn’t cut it with some suburban mayors”
We are reminded that across Canada municipal governments have no constitutional guarantees (unlike the U.S.). They are the creatures of the provincial governments who can wipe them out (i.e. Harris with the creation of Toronto’s megacity; note however, that Harris has given municipalities more powers than ever before).
However, It would not be a good PR move for Quebec to threaten the existence of municipalities on the island of Montreal by amalgamation. Oddly, in this case, the linguistic divisions play in favour of maintaining the status quo.
The bright side? Cuts in the MUC budget mean reduced contributions from the members. Montreal’s cost cutting actions will enable other municipalities to negotiate with their employees. The downloading proposal has angered the small municipalities in the regions, creating unprecedented agreement between the less favoured and more favoured municipalities. This means votes lost for the PQ in areas where they are (were) strong. The population of the Island of Montreal will be minority francophone by the year 2002.
On that happy thought, the evening concluded.
Reported by Eric Hamovitch and Diana Nicholson

Date: Thu, 13 Nov 1997 17:44:15 -0500 (EST)
Subject: Gold and Plutonium
Dear David & Diana,
I wonder if I should turn to alchemy?? But what an interesting evening that was. I was impressed by how informed a discussion we were able to have on nazi gold. As for climate warming, I’m afraid I couldn’t give a spirited defense of the US stance. I am both disappointed and frustrated by the slippage in the US commitment to control greenhouse gases. Now I see that Canada has announced its position, which seems to be about the same as – or a little weaker than – the US. I think we’ll see a train wreck at Kyoto – but perhaps that’s for the best. It may jar some action.
What a splendid, detailed write-up of the session! You do us far too much honor, but i shall not protest.


“Swiss plans to sell 1,400 tonnes of GOLD, 54% of the country’s holdings, brought a 5% plunge in gold futures. Switzerland has the largest official stockpile after America and Germany.”

This is a somewhat sneaky way of announcing our special guests for Wednesday, November 5th. Frank Kinnelly, a Senior US State Department official, served as Scientific Officer at the Embassy in Ottawa where he met his wonderful Spanish wife, Yolanda, a woman of many accomplishments, notably, photography and audio visual presentations.
Frank is an expert on atomic energy (appropriate for Guy Fawkes Night), but has recently been compiling a history of US diplomatic and economic relations with neutral countries (particularly Switzerland) during World War II.
Do join us for what could be an explosive discussion!”

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