Upcoming Federal Budget for 2 May

[geoffrey]

How can you possibly stop currency speculation? You'd have to ban all international trade.

If I'm doing business with the US, I need to buy US dollars to pay for their services. Otherwise, I can never purchase from another country. Now, if I feel like the US dollar is going to skyrocket next week, I can buy those dollars today, and hedge my risk.

What is wrong with this? It's an important part of any business that trades. If you ban or limit currency speculation, then your either done with trade, or we move back to merchantilism.

I understand your worry about a mass sale devaluing a currency, but floating rates are important for trade and pressuring the government into prudent financial management. People won't sell on a large scale just for no reason. Plus, people are buying this currency as well.

The gold standard caused many problems as well, I hope your not suggesting a move back to that. Utilizing currency as a method of trade control is a very valuable tool. We see China doing this with the US now. We could use a similar approach in the case of a regional economic collapse.

Pegging currencies also hurts purchasing parity, people one side of the border will systematically lose purchasing power, where as floating currency will minimize the effects of regional price pressures over the long-term.

Currency trading is an important activity our Bank of Canada takes part in regularly, in order to change or stabilize the value of our currency, as well as reduce inflationary pressures.

My speel on why currency speculation is a good thing.

[lost&outofcontrol]

How can you possibly stop currency speculation? You'd have to ban all international trade.

You cannot stop currency speculation without altering the worlds financial system but you can place a very small tax(%0.1) called the tobin tax to reduce its impact on countries without the means to defend its currency from massive speculation.

If I'm doing business with the US, I need to buy US dollars to pay for their services. Otherwise, I can never purchase from another country. Now, if I feel like the US dollar is going to skyrocket next week, I can buy those dollars today, and hedge my risk.

We aren't talking about a few small time investors here. When one big investor like George Soros decides it's time to sell off his assets everybody follows turning a relatively small currency sell off into a massive one resulting in something like this.(I don't agree with everything said in this article)

What is wrong with this? It's an important part of any business that trades. If you ban or limit currency speculation, then your either done with trade, or we move back to merchantilism.

I understand your worry about a mass sale devaluing a currency, but floating rates are important for trade and pressuring the government into prudent financial management. People won't sell on a large scale just for no reason. Plus, people are buying this currency as well.

The current system relies on a fragile balance easily broken if one major investor decides to leave or if a country like to US changes interest rates, the impacts of this can be felt around to world like what happened in the Asian Crisis on the 90's. These smaller countries are being forced into opening up their financial institutions by the IMF and world Bank but aren't ready to defend their currency against speculation.

The gold standard caused many problems as well, I hope your not suggesting a move back to that. Utilizing currency as a method of trade control is a very valuable tool. We see China doing this with the US now. We could use a similar approach in the case of a regional economic collapse.

No I'm not.

Pegging currencies also hurts purchasing parity, people one side of the border will systematically lose purchasing power, where as floating currency will minimize the effects of regional price pressures over the long-term.

Currency trading is an important activity our Bank of Canada takes part in regularly, in order to change or stabilize the value of our currency, as well as reduce inflationary pressures.

My speel on why currency speculation is a good thing.

We have to place limits on speculation. Every day, over a trillion dollars floats around from one currency to the next.

My speel on why currency speculation can be a very bad thing

[geoffrey]

Can you name an example of how currency speculation has hurt Canada, ever?

You need to stop viewing it as zero sum, where someone is losing for someone to be gaining. Everyone gains through currency trading, especially in establishing fair market prices across borders.

The Tobin tax would never work beyond the theory that it is. It requires perfect international co-operation. Financial markets aren't the same in any two countries. It's impossible to manage, nearly impossible to collect, and a ridiculous concept to believe it could be inforced. On top of that, if my gains are going to be in the 10% range for example, and they must be for people to be trading currency instead of securities, that 0.1% isn't going to discourage me. The Tobin tax is truly one of the most ridiculous concepts construed by the anti-Globalisation movement.

From your own wiki link:

"But the last 10 years of academic finance research on the issue have provided strong evidence that Tobin’s stabilization hypothesis is false. Numerous event studies used regulatory changes in the market structure to establish that higher transaction costs imply higher price volatility and are therefore destabilizing (see Ronen and Weaver (2001), Bessembinder (2001), Bessembinder and Rath (2002)). The most recent evidence is provided in Hau (2006), The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse, forthcoming in the Journal of European Economic Association (June 2006)"

Transaction costs never decrease volatility. Do you have any examples where this is true?

Consumption wasn't curbed by transaction bank fees. Those are higher than 0.1% in many cases.

[Argus]

IMHO we should pay our own way. If the debt was created during our generation, because of our poor choices, we should be paying it off. Besides, as with personal finance, it's always a good idea to have low debt.

That, in a nutshell, is the fetish. And it's wrong. It allowed Paul Martin to go around the country claiming to be a good manager because he balanced the budget when he was incompetent because he boosted government spending.

Argus, if you had access to all of your neighbours' bank accounts for your personal finances, would it make any sense to talk about balancing your budget? No. The only thing that would matter is how much of their money you were spending.

Presumably I would be spending a huge lot of money, and yes, I would still want to pay off debt in case one day a number of them became unemployed, my bills rose, and my income fell, and I was responsible for the resulting mess. BTW, how high your debt is impacts how much money you're spending as a large component of every budget is the servicing cost of the debt.

[lost&outofcontrol]

Can you name an example of how currency speculation has hurt Canada, ever?

You need to stop viewing it as zero sum, where someone is losing for someone to be gaining. Everyone gains through currency trading, especially in establishing fair market prices across borders.

The Tobin tax would never work beyond the theory that it is. It requires perfect international co-operation. Financial markets aren't the same in any two countries. It's impossible to manage, nearly impossible to collect, and a ridiculous concept to believe it could be inforced. On top of that, if my gains are going to be in the 10% range for example, and they must be for people to be trading currency instead of securities, that 0.1% isn't going to discourage me. The Tobin tax is truly one of the most ridiculous concepts construed by the anti-Globalisation movement.

From your own wiki link:

"But the last 10 years of academic finance research on the issue have provided strong evidence that Tobin’s stabilization hypothesis is false. Numerous event studies used regulatory changes in the market structure to establish that higher transaction costs imply higher price volatility and are therefore destabilizing (see Ronen and Weaver (2001), Bessembinder (2001), Bessembinder and Rath (2002)). The most recent evidence is provided in Hau (2006), The Role of Transaction Costs for Financial Volatility: Evidence from the Paris Bourse, forthcoming in the Journal of European Economic Association (June 2006)"

Transaction costs never decrease volatility. Do you have any examples where this is true?

Consumption wasn't curbed by transaction bank fees. Those are higher than 0.1% in many cases.

The Tobin tax isn't there to necessarily reduce currency speculation (I never said that by the way), it's there to help out countries that were screwed by currency speculation. Not everyone wins in the currency speculation game. It's not a zero sums game, I'll agree but you can't deny the effects of it. Many East Asian countries and Latin American countries are still feeling the effects of the mid 90s economic crisis made possible by currency speculation. The countries most affected by this phenomena are the freest one in the world(economically, conditions forced upon them by the IMF & World Bank).

**edit** If you calculate %0.1 of 1 trillion, it's 10 billion dollars/per day, not chump change.

[geoffrey]

How do you enforce it? Lot's of money isn't traded over obvious channels. You and I can privately exchange hard currency without anyone in the world knowing.

I really dispute the concept that this speculation hurts currencies. If you maintain solid economic policy, people will want to buy your currency. If your government waivers and becomes unstable or undertakes poor economic decisions, then yes, your currency devalues. It gives Canadians the ability to get PO'ed when the dollar drops, we can look squarely at our politicans. As happens elsewhere in the world.

[lost&outofcontrol]

How do you enforce it? Lot's of money isn't traded over obvious channels. You and I can privately exchange hard currency without anyone in the world knowing.

I don't know how we enforce it. I'll read up a bit more on the subject (economics and me = ). But the vast majority of currency trading takes place within the major banks and financial institutions of the world (think Chase Manhattan etc..). So there should already be a certain system in place for keeping track of these kinds of transactions.

I really dispute the concept that this speculation hurts currencies. If you maintain solid economic policy, people will want to buy your currency. If your government waivers and becomes unstable or undertakes poor economic decisions, then yes, your currency devalues. It gives Canadians the ability to get PO'ed when the dollar drops, we can look squarely at our politicans. As happens elsewhere in the world.

The thing is even if a country maintains solid economic policy, it doesn't have control of outside "interference".

I'll quote myself here:

Investors were borrowing cash to purchase Mexican Pesos for a guaranteed return. In late 1993-early 1994 the federal reserve started increasing rates forcing investors to liquidate their Mexican investment into greenbacks.

So the Mexican people were left with the bill even though they followed the rules concerning the liberalization of its financial systems. This is basically what happened during the East Asian crisis too. So like I said even if a country maintains good economic policies (and those are debatable i.e. IMF and WB imposed conditions), it may not guaranty them economic prosperity.

[geoffrey]

Mexico should have retaliated with increased interest rates too. There is a sound reason why our rates in Canada, and most other traded currencies worldwide, closely shadow that of the US.

That doesn't mean, however, that we can't deviate from this path. Canada is likely to increase rates beyond that of the US, as we have massive growth right now and the US is struggling to meet their projections.

There is a bigger picture to the currency game. There is ways around collapses and even outside 'interference' always, if you have competent financial managers.

If you want a good read, have $100 (new, you can always buy used, and sell it back) to blow and access toa campus bookstore, I really found the textbook by Frederi Mishkin, "Economics of Money, Banking and Financial Markets," quite informative on the subject. I would send mine out to you, but I need it for this semester.

[lost&outofcontrol]

Mexico should have retaliated with increased interest rates too. There is a sound reason why our rates in Canada, and most other traded currencies worldwide, closely shadow that of the US.

That doesn't mean, however, that we can't deviate from this path. Canada is likely to increase rates beyond that of the US, as we have massive growth right now and the US is struggling to meet their projections.

There is a bigger picture to the currency game. There is ways around collapses and even outside 'interference' always, if you have competent financial managers.

If you want a good read, have $100 (new, you can always buy used, and sell it back) to blow and access toa campus bookstore, I really found the textbook by Frederi Mishkin, "Economics of Money, Banking and Financial Markets," quite informative on the subject. I would send mine out to you, but I need it for this semester.

I'll keep an eye out for it. Once a month, I stop by the book market and buy everything that catches my eye. Last month I bought 12 books with a retail value of over $700, my total was $46 . Hurray for used books.

[geoffrey]

Back to the budget and the need for tax cuts. I'll contribute a little super-conservative rant, don't read it if you don't want to be mad at me for one reason or another.

I want someone, ie. the government, to explain to me why my greatest fear right now isn't student debt, that I can handle, but tax debt leaving univeristy. How pathetic when the government preys on students to fund their ridiculous list of programs.

I say this because I just finished my tax return for the year, and my tax's owing is more than I'm going to owe for my next semester of tution. I am self-employed, so I don't make regular payments, so thats why it's just a mass payment, and this I understand as a cost of my business. But as a full-time student, the tax system is obviously flawed when I pay as much in tax as tution.

The only party that will have my support is one that proposes massive cuts to social spending and taxes. I'm sick of it, if I can make money while full-time in school, anyone that isn't making enough to help themselves, is lazy. End of story. No more of my money should go to those that don't want to work. The CPC currently doesn't have my support as I have yet to hear if further income tax reductions are coming down the pipe, now, this year. Something that will help me get through university without a tax debt.

Paying some $10000 between school and taxes a year is unacceptable for someone's who income is still below the national average. To those asking for child care money, kiss my ass. That's just a drop in the bucket.

Why should I work? Honestly, if I went through government channels and got support, welfare, whatever, I could live as well without doing anything. This is what Canada is now. It's a socialist lazy joke. I'm about ready to give up on my business, it costs me more than what its worth.

When will we have a party in Canada that wishes to reward hard work and self-sustainability, and stop feeding those that have become such a burden on us all. I contribute a considerable amount to society already, I provide integral services to the oil and gas industry, supporting many companies. Yet there are those that contribute nothing, and end up with the same result.

It's frustrating, it's infuriating, and most of all, it's wrong.

[shoop]

As typical of most rants, yours is a little difficult to follow.

Are you saying that all students should be exempt from paying taxes? Tuition is still far less than the average Canadian pays in income taxes a year.

Do you have any real idea what a pittance people in Alberta receive when they are on welfare? Or that you wouldn't qualify as a student?

I say this because I just finished my tax return for the year, and my tax's owing is more than I'm going to owe for my next semester of tution. I am self-employed, so I don't make regular payments, so thats why it's just a mass payment, and this I understand as a cost of my business. But as a full-time student, the tax system is obviously flawed when I pay as much in tax as tution.

Why should I work? Honestly, if I went through government channels and got support, welfare, whatever, I could live as well without doing anything. This is what Canada is now. It's a socialist lazy joke. I'm about ready to give up on my business, it costs me more than what its worth.

It's frustrating, it's infuriating, and most of all, it's wrong.

[geoffrey]

Full-time students should have more tax breaks than 60% of their tution costs. If student debt is such an issue, we need to start encouraging people to make money, and not to just borrow it.

It's not just students though, I'm strongly behind the concept that everyone in Canada pays too much in tax which is mostly just transfered to those who don't deserve it. We have a group of Indians in Ontario right now, who don't pay anything in tax, receiving benifets while shutting down a town. Let's be realistic here, why should students, or any Canadians pay for that? Without such burdens, we'd all pay alot less taxes.

[Renegade]

Paying some $10000 between school and taxes a year is unacceptable for someone's who income is still below the national average.

geoffrey, while I sympatize with many of your sentiments, you do realize that your university education cost is subsidized? If you were paying the full unsubsidized cost, it would likely be more than $10000/year for tuition.

[geoffrey]

Renegade,

I agree, I know this cost is subsidized. I'd rather pay $10,000 towards my future in tution, instead of paying thousands in transfers to welfare people.

The way I look at it is like my last post there. If Canada has a student debt problem, we need to encourage students to be working and not borrowing. There isn't much encouragement in working when you end up paying as much in taxes as tution if you do!

[Renegade]

Renegade,

I agree, I know this cost is subsidized. I'd rather pay $10,000 towards my future in tution, instead of paying thousands in transfers to welfare people.

The way I look at it is like my last post there. If Canada has a student debt problem, we need to encourage students to be working and not borrowing. There isn't much encouragement in working when you end up paying as much in taxes as tution if you do!

It is natural and expected that students incur debt. I dont' think it is a problem. Personally I don't like the way the government treats tuition. They should recognize it as an investment required to generate income.

Here's what I would do if I were the government:

1. Loan qualified students money for specific education. Qualified means that the student has the required prerequsite grades or skills. It also means that only programs which lead to a profession which is in need of workers gets funded. Payments don't start until your first job or some time after graduation.

2. Universities charge the full unsubsidized cost of tuition.

3. Students get to deduct the loan and interest from income, or carryforward indefinately (like capital losses), until it is all used up.

4. If you don't graduate you are still on the hook for the loan.

[shoop]

Hmmm, you keep repeating this line about paying as much in taxes as you do in tuition.

But a combined $10k in a year, for taxes and tuition, isn't a lot compared to what most Canadians pay in taxes alone.

How little do you want to pay for your education?

We don't want to make the tax situation soooo advantageous that students stay in school forever.

Renegade,

I agree, I know this cost is subsidized. I'd rather pay $10,000 towards my future in tution, instead of paying thousands in transfers to welfare people.

The way I look at it is like my last post there. If Canada has a student debt problem, we need to encourage students to be working and not borrowing. There isn't much encouragement in working when you end up paying as much in taxes as tution if you do!

[geoffrey]

Hmmm, you keep repeating this line about paying as much in taxes as you do in tuition.

But a combined $10k in a year, for taxes and tuition, isn't a lot compared to what most Canadians pay in taxes alone.

How little do you want to pay for your education?

We don't want to make the tax situation soooo advantageous that students stay in school forever.

Renegade,

I agree, I know this cost is subsidized. I'd rather pay $10,000 towards my future in tution, instead of paying thousands in transfers to welfare people.

The way I look at it is like my last post there. If Canada has a student debt problem, we need to encourage students to be working and not borrowing. There isn't much encouragement in working when you end up paying as much in taxes as tution if you do!

Well tution isn't a full tax credit, something to keep in mind. I'm just proposing a pragmatic solution to student debt problems for many people, don't charge them as much taxes as people not in school. Kind of makes sense to me.

I see your issue with people just staying in school forever. So how about this, we fund undergraduate education, well, not fund it but not tax people trying to pay for it. Not all of us have parents that canpay for tution outright, not all of us want our parents paying for it (my case). If you don't complete in the average time frame, so 4 years, then you move to your normal tax bracket. So a 4 year tax grace period for people in all post-secondary education.

Student debt isn't an issue with me, as I can go to the parents if I needed money to pay. But its clear that isn't an option for many low income families. I can easily see someone being in some trouble if they have a major tax bill and tution bill upcoming.

I'm not arguing these points from a selfish ideal, I can afford my taxes, I can afford my school. But I also see it as I'm in a rather privledged position, and those making even just slightly less than me would have quite the difficulty keep a roof over their head and themselves in school, with or without loans. If we care about filling those professions that are in high demand with the most qualified people, we can't tax our students out of school.