Economy Hot & Unemployment 30 Yr. Low

[THELIBERAL]

http://www.canada.com/montreal/montrealgaz...d8-dfa70ec6be90

Economy hotter than a day in July

All indicators are up, unemployment down

The Gazette

Wednesday, July 13, 2005

It might last only as long as a balmy summer, but the Canadian economy is as hot as the weather, and the indicators show it.

The economy's growth rate, the stock market, our balance of trade surplus and the dollar - all are up or predicted to move that way.

About the only thing that's down is the unemployment rate, which has sunk to a 30-year low.

[cybercoma]

This wouldn't have anything to do with Alberta beginning to supply more oil to the United States because there is uncertainty in the markets in the middle east, would it? Don't be so naive as to think the government can directly influence unemployment and how "good" the economy is.

[Cartman]

Don't be so naive as to think the government can directly influence unemployment and how "good" the economy is.

While I agree with you for the most part, there seems to be no shortage of opinions as to how various governments supposedly destroy economies.

[mirror]

Excellent observation!

[SirSpanky]

We'd be hard pressed given the demographic trends (baby boomers entering the big spend time of their life) and America's success to not be smoking along.

Don't attribute it to the government.

[Toro]

Canada is benefitting from the Liberals dealing with the deficit back in the 1990s, so in that respect, the Liberals do deserve some credit. However, we are in the midst of a commodities bull market, and that helps Canada more than most countries, including the US.

[Canuck E Stan]

So then today , what we have based over the last fifteen years is an economy that is part Liberal deficit, and part commodity bull market, then it could be called- the Liberal Bull Market. Makes sense to me.

[Bro]

and the dollar - all are up or predicted to move that way.

Right...

Did you know it has always been liberal policy to keep our dollar low,is that why you voted for them as well?

This just shows you are a true liberal,don'tknow what the hell you are talking about

or what your party platforms are.lol.

[Canuck E Stan]

That's very interesting about the dollar, and about Liberals liking to keep it low. With the impending rise would it help the Liberals if I kept it real low like down in my shoes?Or should I do like a true Liberal and send it to party head quarters. I will want a receipt of course.

[cybercoma]

i was watching the news today and they say the american market is booming too. that must be from George w. Bush's brilliant policies. Or maybe that too can be attributed to the Liberal government here. We're keeping our neighbour afloat.

[Guest eureka]

It has never been any party's policy to "always keep the dollar low." It has always been policy to maintain the dollar at a level appropriate to competitive needs.

Low is not necessarily good.

[Toro]

The world is experiencing a global liquidity boom. That's why stocks, bonds, real estate, commodities, and virtually every other asset class has been soaring. That will come to an end though, and maybe doing so now. Canada will continue to benefit from the bull market in commodities for the next decade, even though one can expect some pretty scary declines in commodity prices in this bull market. Demand is increasing because of China and there has been little supply over the past decade or so.

The value of the dollar is around 75-80 cents. It was when it hit 62 cents and will be so when it hits 90 cents. Keeping the value of the dollar low is silly because it decreases our wealth in the world. A rising currency long-term is good because its a sign of a healthy economy. An artificially high currency isn't though as it squeezes economic activity.

[mirror]

Canada is benefitting from the Liberals dealing with the deficit back in the 1990s, so in that respect, the Liberals do deserve some credit.  However, we are in the midst of a commodities bull market, and that helps Canada more than most countries, including the US.

<{POST_SNAPBACK}>

I agree. The projections I have seen for Canada's oil & gas production - SECOND ONLY TO SAUDIA ARABIA - are incredibly bullish.

[Toro]

Canad has 9 billion barrels of oil equivalent. Including the Tar Sands, Canada has 179 billion. The problem is that oil has to be around $40 to make it work. Its heavy, gooey stuff. Lots of capital has been flowing into northern Alberta lately. My bet is that WTI will cross $40 sometime in the not too distant future and once again, people will question the viability, which will be a mistake IMO.

[mirror]

I read recently that $18-$20 of the price of oil is from speculators alone. Any chance of these speculators losing interest?

[JOVIAC]

Attributing Canada’s current economic situation to the Liberals is stunningly naive! World macroeconomics have, and always will, generate enormous momentum in any given direction… and guess what? Canada is not a big momentum shifter.

Currently the macroeconomic momentum’s direction is commodity consumption with energy and other natural resources leading the way. We all know that Canada is rich in natural resources and has oil reserves only second to Saudi Arabia. Should we pat our floundering PM on the back for this great economic direction? Or should we look a little deeper at what really is happening and what may be coming next? I for one will look a little more prudently.

I would love to get into how China is pulling the commodity momentum while the USA is pushing the momentum with it’s stupendous trade deficit, national debt, and war financing. I would love to get into how the Canadian dollar and other tradable commodities are only relative fluctuations of how the US dollar is doing, and how the US dollar needs to continue falling for the American economy to soften their own economic problems, ie trade imbalance. I would love to get into how interest rates without any doubt will rise causing the housing bubble to tumble and personal bankruptcies balloon. I would love to remind everyone how flat the Dow Jones has been and what typically happens to the market when interest rates go up. But all of that is out of context while we are simply giving thanks to our brilliant (cough cough) liberal leaders. Thanks for being such worldly leaders!

Give me a break!

-JOVIAC-

Joviac Blog

[Toro]

I read recently that $18-$20 of the price of oil is from speculators alone. Any chance of these speculators losing interest?

<{POST_SNAPBACK}>

Its hard to say, Mirror. We know that at current inventory levels, over the past 20 or so years, oil has averaged around $20. From 1980-2000, oil supply grew around 2% per year, while demand has been grew 1.5% or so a year. However, because of China, global oil demand has been running at 3.5% since 2001. That may be slowing though as oil demand from China has been falling this year. Thus hedge funds and commodity funds may keeping up prices. But if that's so, then its a very recent phenomona. Usually when speculators take over a commodity, that's a good time to be leaving the market, any market, because speculators always lose interest eventually.

[Toro]

Attributing Canada’s current economic situation to the Liberals is stunningly naive!  World macroeconomics have, and always will, generate enormous momentum in any given direction… and guess what?  Canada is not a big momentum shifter.

Currently the macroeconomic momentum’s direction is commodity consumption with energy and other natural resources leading the way.  We all know that Canada is rich in natural resources and has oil reserves only second to Saudi Arabia.  Should we pat our floundering PM on the back for this great economic direction?  Or should we look a little deeper at what really is happening and what may be coming next?  I for one will look a little more prudently.

I would love to get into how China is pulling the commodity momentum while the USA is pushing the momentum with it’s stupendous trade deficit, national debt, and war financing.  I would love to get into how the Canadian dollar and other tradable commodities are only relative fluctuations of how the US dollar is doing, and how the US dollar needs to continue falling for the American economy to soften their own economic problems, ie trade imbalance.  I would love to get into how interest rates without any doubt will rise causing the housing bubble to tumble and personal bankruptcies balloon. I would love to remind everyone how flat the Dow Jones has been and what typically happens to the market when interest rates go up. But all of that is out of context while we are simply giving thanks to our brilliant (cough cough) liberal leaders.  Thanks for being such worldly leaders!

Give me a break!

-JOVIAC-

Joviac Blog

<{POST_SNAPBACK}>

I agree with the tone of your post. However, the US dollar has been rising against the Euro recently as interest rates are lower in Europe, growth is slower and there are questions about whether the Euro can survive. But I think you are dead on about the housing bubble and the implied excess liquidity in the financial system which has pushed up asset markets everywhere in the world. I think the imbalances in the global economy have put the economy at risk. The Fed is trying to mop up the liquidity, but they got us into this mess, and they may be too late. Commodities will crack when demand slows, as it invariably will, but we are in a long-term bull market for commodities because of tight supply and demand from China.

[Yaro]

The value of the dollar is around 75-80 cents. It was when it hit 62 cents and will be so when it hits 90 cents. Keeping the value of the dollar low is silly because it decreases our wealth in the world. A rising currency long-term is good because it’s a sign of a healthy economy. An artificially high currency isn't though as it squeezes economic activity.

Actually, the value of the dollar is mainly dependent on largely emotional investment runs in the short run and confidence in national fiscal policy in the long run. The Canadian federal government can be given a great deal of credit for the latter. Keeping the value of the dollar low is certainly not "silly", it has allowed us to keep an edge on our only real trading partner of consequence, it has been a large part of what has lured a great deal of the manufacturing allotted to north America as a whole. There is also the natural bias of the American markets for internal consumption and the border costs which are eliminated by maintaining the dollar at a reduced level. Short of tearing up NAFTA and having a major economic realignment this is the best policy and has proven to be such as it has resulted in the strongest economy in world.

I agree. The projections I have seen for Canada's oil & gas production - SECOND ONLY TO SAUDIA ARABIA - are incredibly bullish.

Secondly only to a Saudi Arabia which is looking increasingly dishonest in there evaluations of there own reserves.

Attributing Canada’s current economic situation to the Liberals is stunningly naive! World macroeconomics have, and always will, generate enormous momentum in any given direction… and guess what? Canada is not a big momentum shifter.

Hardly, the liberals are the single biggest reason for Canada's economic resurgence, while the Americans moronic fiscal policy and the rising commodity markets are major factors, even combined they don't make up for the investor confidence that has been created in the Canadian market.

I would love to get into how the Canadian dollar and other tradable commodities are only relative fluctuations of how the US dollar is doing, and how the US dollar needs to continue falling for the American economy to soften their own economic problems, i.e. trade imbalance.

The US dollars value is 50% of the relative fluctuation, this is a mathematical reality. As to the American dollar, its value is being carried by the pegged Chinese currency and has maintained its strength despite the US's best efforts to devalue it. This has resulted in an extremely volatile currency market. It’s a circumstance Canada should be taking advantage of by matching the US increases in currency production. But that is the only complaint I can really think of over the last several years of this government’s fiscal policy which has on the whole been brilliant.

I would love to get into how interest rates without any doubt will raise causing the housing bubble to tumble and personal bankruptcies balloon. I would love to remind everyone how flat the Dow Jones has been and what typically happens to the market when interest rates go up. But all of that is out of context while we are simply giving thanks to our brilliant (cough cough) liberal leaders. Thanks for being such worldly leaders!

I am not quite sure what you are suggesting they could have done here? We have maintained a relatively stable economy through this boom and have actually had a much smaller boom then the US, the reality is that we followed suit so that we wouldn't be hurt by to large an outflow of investment capital. This wasn't really in our power to control as we were just maintaining our advantage on the US, again they did the right thing, in fact the only thing they really could of.

I do agree however that the housing bubble will pop and personal bankruptcies will skyrocket much as they did in the 80's but I would bet money that they won't be even close to what we will see from our neighbors to the south. This is one of the unfortunate realities of having free trade with a market 10x your size right next door.

[Toro]

Actually, the value of the dollar is mainly dependent on largely emotional investment runs in the short run and confidence in national fiscal policy in the long run.

The "price" of the dollar is dependent on largely emotional investment runs in the short run, not the "value". There's a difference. The "value" of the dollar is dependent on interest rate differentials, a trade-weighted basket of goods, use of the greenback as the global reserve currency, economic growth, capital flows, productivity, demand for goods within the country, etc. The 75-80 cents is roughly the trade-weighted value of goods between the two countries. That has not changed much over time as the structure of the two economies have not changed much over time. In fact, the US has become more competitive because productivity is higher. Plus, currently, short-term interest rates are higher in America than Canada.

Keeping the value of the dollar low is certainly not "silly", it has allowed us to keep an edge on our only real trading partner of consequence, it has been a large part of what has lured a great deal of the manufacturing allotted to north America as a whole. There is also the natural bias of the American markets for internal consumption and the border costs which are eliminated by maintaining the dollar at a reduced level. Short of tearing up NAFTA and having a major economic realignment this is the best policy and has proven to be such as it has resulted in the strongest economy in world.

Keeping the currency deliberately low is inflationary and makes Canadians relatively poorer in the world. It also distorts capital flows as it channels savings into export industries that may or may not be competitive in the long run. Strength of the currency is a sign of strength in the economy. Weakness of the currency is a sign of weakness in the economy. Also, there have been a few studies which have shown the link between a hard currency and economic growth. The harder the currency, the stronger the growth over time. This makes sense because, over time, a harder currency should mean lower interest rates.

[Yaro]

The "price" of the dollar is dependent on largely emotional investment runs in the short run, not the "value". There's a difference. The "value" of the dollar is dependent on interest rate differentials, a trade-weighted basket of goods, use of the greenback as the global reserve currency, economic growth, capital flows, productivity, demand for goods within the country, etc. The 75-80 cents is roughly the trade-weighted value of goods between the two countries. That has not changed much over time as the structure of the two economies have not changed much over time. In fact, the US has become more competitive because productivity is higher. Plus, currently, short-term interest rates are higher in America than Canada.

Good reply, while it is true that the trade weighted value of goods has remained reletively constant that has little actual effect on the trade effects of reducing the value of goods. while most of your point is true that has no actual relevence when discussing the effect that it has on investment flow. The greenback has remained the global currency only at the behest of the Chinese who could crash it at will, OPEC has continuely pointed out that it may move to the Euro sooner rather then later rather then experience the transitonary pains associated with the eventual crash of the US markets, this would defacto make the Euro the global reserve currency.

Its not surprising that the interest rates in Canada would rise faster because our economy is stronger, the US economy despite the measures taken has seen only very modest growth.

Keeping the currency deliberately low is inflationary and makes Canadians relatively poorer in the world. It also distorts capital flows as it channels savings into export industries that may or may not be competitive in the long run. Strength of the currency is a sign of strength in the economy. Weakness of the currency is a sign of weakness in the economy. Also, there have been a few studies which have shown the link between a hard currency and economic growth. The harder the currency, the stronger the growth over time. This makes sense because, over time, a harder currency should mean lower interest rates.

I agree that keeping the currency artifically low makes Canadians poorer reletively but this further encurouges many of the actions by investors that help to strengthen our economy as a whole. I disagree though that currency value is a good sign for economy strength, the US has great currency value but a major baloon of an economy. They keep printing money to try to shake China, but so long as the Euro keeps falling and we keep depressing our dollar its not really long term relevent.

I understand your point but until we are much further along on our own debt issues (which still remains serious) I think the course we are taking is the responsible one.

[mirror]

I have seen the incredibly positive financial projections for Alberta because of the tar sand oil. I have even read that eventually Alberta may be able to do away with provincial income taxes. What are the possibilities of Canada's debt eventually being paid down with some of this money?

[kimmy]

I have seen the incredibly positive financial projections for Alberta because of the tar sand oil. I have even read that eventually Alberta may be able to do away with provincial income taxes. What are the possibilities of Canada's debt eventually being paid down with some of this money?

It already is, to an extent. The enormous sums of equalization money generated from Alberta over the past several years have allowed PMPM to transfer money to poorer provinces without dipping into the big federal surplus that was created by cutting transfers to the provinces in the 1990s... so Alberta's revenues have been helping the federal government keep chipping away at the national debt.

-k

[Riverwind]

I have seen the incredibly positive financial projections for Alberta because of the tar sand oil. I have even read that eventually Alberta may be able to do away with provincial income taxes. What are the possibilities of Canada's debt eventually being paid down with some of this money?

It is worth noting that the tar sands will likely never be a hugely profitable source of revenue since it takes so much energy to turn them into crude. As the price of natural gas goes up so does the extraction cost for tar sands oil. There will likely come a time when BC or NWT will make more money selling the natural gas directly to the US instead of using it to turn Alberta tar sands into oil. In short, people in Alberta should be careful about projections that include revenue from tar sands oil. People on this board who are more familar with the oil patch may be able to correct details I got wrong but I am pretty sure the statement I made is basically correct.

[Toro]

Good reply, while it is true that the trade weighted value of goods has remained reletively constant that has little actual effect on the trade effects of reducing the value of goods. while most of your point is true that has no actual relevence when discussing the effect that it has on investment flow. The greenback has remained the global currency only at the behest of the Chinese who could crash it at will, OPEC has continuely pointed out that it may move to the Euro sooner rather then later rather then experience the transitonary pains associated with the eventual crash of the US markets, this would defacto make the Euro the global reserve currency.

Thanks. From a pracitical standpoint, the trade-weighted value of the dollar is a good measure of the value of currencies, but it doesn't have much application in currency markets in the near-term. Investment flows do however, which are a function of many of the things I posted earlier.

I don't have the figures in front of me, but its not just the Chinese who have funded the enormous deficits in the US. Its the Japanese as well, and even more so. The Japanese are sitting on something like $600-$700 billion in dollar reserves, most of which has been accumulated this decade, while China's is somewhere between $200-$300 billion. Of course, both have a vested interest in keeping the dollar propped up so they wouldn't dump the dollar specifically.

The dollar accounts for about 65% of the world's global reserves whereas the US economy accounts for about 40% of global production. It makes sense for central banks to move away from being so dollar-dependent. OPEC members first started talking about moving to the Euro to settle accounts a few years ago when the dollar was plunging against the Euro. Because oil is settled in dollars, as are all commodities, the value of their product was falling, hence the chatter to move to another standard. But since that time, the value of oil in Euros has also skyrocketed, so that angle is gone. However, OPEC is filled with Arab countries, and the US isn't too popular in that part of the world right now, so moving assets out of dollars into euros makes sense for politics alone.

There are only three possibly global reserve currencies at this time - the dollar, the euro and the yen. At this time, only the dollar is a viable currency as a reserve currency - though the Fed has done a good job to undermine this the last few years. There is little growth in the Eurozone and it remains to be seen if the euro can last since its own members are undermining its existence running high deficits and voting against further integration. The Japanese are still mired in a deflationary funk. Of those three, only America provides growth. 50, 100 years from now, one should expect the yuen to also be a major force in world currency markets.

I agree that keeping the currency artifically low makes Canadians poorer reletively but this further encurouges many of the actions by investors that help to strengthen our economy as a whole.  I disagree though that currency value is a good sign for economy strength, the US has great currency value but a major baloon of an economy. They keep printing money to try to shake China, but so long as the Euro keeps falling and we keep depressing our dollar its not really long term relevent.

I understand your point but until we are much further along on our own debt issues (which still remains serious) I think the course we are taking is the responsible one.

I was speaking over longer periods of time, decades as opposed to years. Movements in currency prices in individual years are often transitory. A strong currency over the long-term is indicative of a strong economy, and vice-versa.

A country that is further along in debt issues should have a stronger currency. And actually, though Canada has done a very good job with its fiscal accounts, government debt to GDP is about same in Canada and the US at around 65%, so the two countries are about the same. At the current rate, Canada will do better than the US going forward but Canada was worse off because the figure went as high as 100% in the mid-90s whereas it never went higher than 75% in the US. You can find these figures on the OECD web site.