Tomer Avital in the wake of the approval of the 2023-24 budget For the sake of the journalists and presenters…
Wednesday Night # 858
Written by Diana Thebaud Nicholson // August 12, 1998 // Herb Bercovitz, Reports, Wednesday Nights // Comments Off on Wednesday Night # 858
Special guests this week are Sonia Saumier de Bueno and her husband Gerardo Bueno y Zirión, O.B.E.
A dividend which Sonia brings to the table — her son Gregory Saumier-Finch of Public Technologies (authors of the excellent, multilingual Montreal International web site).
In addition, we will also welcome Robert Landori-Hoffmann and his guests Mark Schwartz, developper, artist, sculptor, expert on liturgy – a Renaissance man, indeed, and Clive Minchom, a recent arrival in Montreal whose last position was that of Vice President, Business Development for fonorola. Clive was born in England, read philosphy and economics at Balliol College, Oxford.
The presence of three new faces at the table, all of whom have an abiding interest in and strong knowledge of international business and economics dictated the course of the evening’s discussion. Gerardo Bueno y Zirión of Mexico, Clive Minchom, born and educated in England and Christopher Goodfellow, an MBA and a vocal Canadian critic of the fiscal policies of the Chrétien Government each contributed a special perspective to the discussion of issues such as deflation, the decreasing value of the Canadian dollar and possible cures.
Margaret Lefebvre having just returned from the annual Couchiching Institute Conference spoke briefly about her personal impressions of the event, offering insights which were not picked up in the extensive media coverage of Paul Martin’s comments during his keynote address.
David Nicholson opened the discussion by asking for a definition of deflation. It was defined as a period during which there is an increase in employment and in GDP, but a decrease in currency valuation, leading to contraction of economic activity, budget pressures and balance of payments problems.
In the current situation, the spectre of deflation is waiting in the wings. In fact, it has been stated in some quarters that the world is slipping into deflation. It has been pointed out that inflation is a rather recent phenomenon, starting after the end of World War II. Many economists say that over the years, the periods of deflation have been more frequent than periods of inflation. Deflation might or might not be destructive, but is now far more difficult for any individual country to control than in the 40’s and 50’s because of globalization.
Reductions in price levels are a threat – this is a much more difficult situation to reverse. However, there have been longer periods of deflation; today’s international economies are more likely to maintain stable prices.
The Decline in Value of the Canadian dollar
The history of the downward trend of the Canadian versus the United States dollar is one that dates back several decades. Some believe that the spiral has become more pronounced because of the Asian crisis, falling commodity prices. Others say that the international market is discounting the dollar recognizing that no major policy reforms are forthcoming in an era when our economy cannot support our governments.
An artificially low Canadian dollar conceals a lower productivity and provides no incentive to improve productivity over the long term. Over the past thirty years, productivity has increased 106% in the United States, compared with an increase of 36% in Canada. The emphasis should be on increasing productivity rather than favouring the suppression of the value of our currency. The political uncertainty is judged to have had a steady three cent effect on the value of the Canadian dollar.
Even if it attempted to do so, it the Bank of Canada would find that it does not have the resources to support the Canadian Dollar against the market forces and the weight of the currency speculators.
The only possible successful intervention would be with the aid of the United States Treasury as was done during the Mexican currency crisis. Mexico is now emerging from that crisis and actively moving towards the resolution of many of the problems which caused it.
Raise Interest Rates?
Historically, government policy has been to maintain interest rates at two percent higher than those in the United States. Today interest rates are two percent lower.
The change in interest rate policy has certainly increased exports from Canada. While this has had the effect of reducing unemployment, some secondary longer term effects are possible.
One of the rare moments of almost-complete agreement was in response to the suggestion that Canadian interest rates should rise. The answer was a resounding NO! Don’t raise interest rates, reduce taxes. A single guest objected, recommending that short term debt be transformed to long-term debt bearing a higher rate of interest.
The solution is either a very restrictive monetary policy, which Canadians would not easily accept, or to reduce government spending drastically. Fifty-two percent of the Canadian gross domestic product is spent by the various levels of government. This compares with thirty-five percent in the United States. The governments of Canada should cut spending to a level of 30% to 35% of Gross Domestic Product, a level at which the private sector can support it with a reasonable level of taxation.
(Editor’s Note: The Gazette of Saturday, August 15th published a Comment piece by Christopher Goodfellow entitled “Too heavy a burden” which elaborates on several of these themes)
Considering the non-emergence of anything remotely resembling a consensus arising from this group, it is not surprising that the Government of Canada itself, appears to be floundering.
A brief discussion followed on the degree of satisfaction with NAFTA. Most Canadians are, but would like to see some adjustments; Americans are generally satisfied, but special interest groups are exerting pressure to scuttle the agreement.
At the same time, the negotiations for the Free Trade Area of the Americas are proceeding since the Spring meeting in Santiago de Chile.
Globalization is no longer an issue for negotiation – it is here and governments must seize the opportunity to set some parameters to the initiative launched and implemented by the multinationals.
There will be a further lifting of the borders, even broad acceptance of the MAI, if provisions are included to protect sovereignty and individuals, including human rights, social clauses, social charters, social safety nets.
Due to the early departure the next morning of Gerardo Bueno, the evening’s discussion was reluctantly ended at 11 with many good opinions suspended until the next gathering on this topic. However the night continued with the Music of our Mayor Peter Trent on the Guitar accompanied by various voices.
Update: Sunday 16 August 1998 Beetle mania Puebla is the only plant on Earth churning out the old Bug, feeding a market for the car that motorized Mexico – and there’s no end in sight by JAMES F. SMITH Los Angeles Times Volkswagen’s shapely New Beetles are rolling off the high-tech assembly line here, poised to dazzle cash-flush U.S. baby-boomers swept up in nostalgia for 1960s Beetlemania.
Notes from Christopher Goodfellow
I would have liked to delve deeper than we did…we seemed to float around. The fellow who was opposite you and who worked for fonorola seemed astute and I would have liked to follow his lines of reasoning on trade balances…and commodity prices…you see I think these have all become red herrings and excuses as to why the government isn’t responsible when in fact the real problem is this terrific imbalance between private/public sector and that must be addressed first and foremost.
You know when you are flying and you get “behind” the power curve…you can pour on full power and you’ll still have to trade altitude to get airspeed…well we are in that situation today and our dollar is going lower and we need to get the overall taxation levels at all three levels of government to a level at which the private economy can support the public sector. That’s it…that’s all… whether we have “balanced” the federal budget or not is not going to get us out of this…only a very determined and resolute policy change to reduce the overall burden will bring real change.
The funny thing is is that I really believe David we should all be rolling in money in Canada and have full employment and somehow we have let the public sector drive the whole machine these past 30 years to the point of bankruptcy. As I wake up to news that the federal cabinet is divided and “indecisive” over whether to appeal the pay equity issue is unbelievable. We cannot address all past wrongs…my god…if we are to do this we should give all the land back to the indians…this simply is unrealistic and is reflective of how unrealistic the cabinet is in deciding what course this country needs to take to regain fiscal health.
The ruble floated this A.M. down 30% of what it was… we may well see our dollar do the same. I see no alternative than a continued slide unless the government seizes the moment and takes very decisive action in the national interest. I’m sure we will be treated to the wisdom of Solomon this week with the Supreme Court decision….