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The Bank of Canada (BoC) was formed under a Royal Commission created by R.B. Bennet in 1934. It's ability to regulate the Canadian economy has only been in question once since, during the 80's (interventionist policies from Trudeau were more to blame). However, I'm concerned with yesterday's decision:

http://www.bankofcanada.ca/en/fixed-dates/...ate_110706.html

This clearly indicates an Ontario/Quebec fiscal policy. Which is fine, to an extent, I am comfortable with the fact that Ontario and Quebec hold the most people, have more of the money, ect..

What is being ignored is that Alberta is on the verge of an economic crisis. There is a labour shortfall of 300,000 workers over the next 5 years. There is no housing in Calgary and little in Edmonton (single family 3 bedroom is over $400,000 easy in Calgary, up 100% from 2 years ago). There are no schools ready, no hospitals ready, nothing.

There isn't even a divided highway to the oil sands.

Alberta is a texbook case of an exploding economy, one growing extremely fast, too fast.

An effective decision in Alberta's interest today would be a considerable increase in interest rates. Slow the economy... futher raise the dollar to discourage American purchasing of oilsands exports. Alberta is nearly in a hyperinflation situation because burger flippers are getting paid $15 an hour in some places, in Fort Mac some over $20.

It needs to be controlled, and the only proven effective way to decrease economic growth is interest rate hikes (well, there is more, but let's keep it simple, the BoC isn't going to commit to a massive foreign traded bond run if it won't increase rates). I was hoping the Bank would have at least had the sense to raise it a quarter point (we need a full point) as a compromise.

What's even more distressing is that the Bank has stated they are unlikely to raise rates again.

What's the benefit? Lower rates = lower dollar compared to the Greenback. Meaning our manufacturing core is benefiting.

The questions I pose, can a Central Bank accurately manage a nations finances when each region has competing and conflicting monetary requirements? What is the feasibility of Alberta controlling it's own interest rates "domestically" through the Alberta Treasury Branches (the Alberta government bank)?

Perhaps another reason why we'd be better off alone.

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The questions I pose, can a Central Bank accurately manage a nations finances when each region has competing and conflicting monetary requirements? What is the feasibility of Alberta controlling it's own interest rates "domestically" through the Alberta Treasury Branches (the Alberta government bank)?
There are huge benefits for a common currency, however, there are disadvantages when different geographic areas experience different rates of growth. The BOC sets rates based on what is happening in the economy as an average which means that no matter how hot the economy is in Alberta there is only so much that it can affect the Canada wide averages. I do not think the BOC is deliberately ignoring Alberta.

In addition, I do not think a higher dollar will have much affect on the demand for tar sands oil since the price is set in US dolllars. However, a higher dollar will increase costs for tar sands producers which are already experiencing run away costs. IOW, a lower dollar is not a bad thing for Alberta.

Lastly, the labour shortages in Alberta are drawing workers from the rest of the country so the wages are lower than they would be otherwise thanks to the economic union.

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Central banking and the monetary system, the bane of modern existence. High dollar, good for citizen consumers, lower costs for imported products, higher value when we excape on vacation. Low dollar good for exporting businesses. High interest rates good for banks bad for everybody else, kills economic growth. Low interest rates good for everybody else and spawns economic growth.

What is the solution to this problem?

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Central banking and the monetary system, the bane of modern existence. High dollar, good for citizen consumers, lower costs for imported products, higher value when we excape on vacation. Low dollar good for exporting businesses. High interest rates good for banks bad for everybody else, kills economic growth. Low interest rates good for everybody else and spawns economic growth.

What is the solution to this problem?

There isn't one. Well, none that satisfies everyone.

A central bank's job is to ensure that inflation doesn't get out of control for an entire nation. It looks for signals for recession at home and abroad. And it tries to ensure that there is a balanced approach to things.

There are businesses who have disagreed with the higher interest rates but there are just as many more worried about inflation. Lately though, there has been signs of a slowdown. Yes, even in Alberta, they are predicting the economy might be near a bubble, especially in real estate.

There is nothing wrong with the central bank taking a pause to see what the trend is.

It would be surprising if a bank such as that in Alberta could do a better job considering that Canada's central bank is described as one of the best in the world at what it does.

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What is the solution to this problem?
Trading currencies backed by commodities that have real value (i.e., gold) and thus can not be counterfeited.

Even hardcore conservatives, and I mean harcore, wouldn't agree to that because the Russians manipulate the market there.

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Yikes ! You want to go back to the gold standard?
Yes. Only out of fairness. I do not want the government to have the power to tinker with the economy or make winners and losers. Trade gold or silver or lead or pearls or sand or corn or olive oil, anything, so long as it is real.
Playing with monetary systems is pretty scary.
Currently, our central banks do precisely that: they play with the money they force you to use. (Actually, they just make it excedingly difficult to use any other currency but their ow.) The actions of the central banks create winners and losers by "averaging out" the economy in question.
But just reverting to the gold standard won't stop the inflationary pressure that started this thread will it?
Correct. It will not stop inflation. Inflationary pressures will be free. There will be more inflation but when it occurs, it will be striclty a result of something "real" in the economy: increase demand or supply or a discovery of more gold. The governments (through their central banks) will not have the power to create winners and losers.

The advantages of controlling inflation with central banking is real. I do not deny that. It is as real as the advantages of stealing money from rich and prosperous parts of Canada and giving it to other parts of Canada in the form of transfer payments.

What is the solution to this problem?
Trading currencies backed by commodities that have real value (i.e., gold) and thus can not be counterfeited.
Even hardcore conservatives, and I mean harcore, wouldn't agree to that
I know. I am not a hard-core conservative. I believe in extreme freedom -- more so that what any "conservative" believes.
because the Russians manipulate the market there.
Russians manipulate the market with gold??? I do not know what Russians do. I am curious. Please explain.

Nevertheless, that is not why "conservatives" want fiat currencies. The appeal of fiat currencies is specifically because you can "print" it or "suppress" without creating any real wealth to back it up. Thus, allowing the State to distort the economy -- i.e. steal from Peter to give to Paul.

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Going back to the gold standard would really anger the bankers. Hell, the actual control of the money supply rests with them nowadays, with something like 90% of the total money supply not in hard currency but instead created as interest bearing debt!!

Converting would be a bitch. But you are right in that through manipulating the money supply you do get real effects. I live in Alberta so I am not a big fan of equalization at all. That little plan takes billions of dollars out of Alberta every year. Taxes are supposed to be levied to provide REAL services to the citizen being levied. How the hell is that true in the case of an Alberta citizen?

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Yes. Only out of fairness. I do not want the government to have the power to tinker with the economy or make winners and losers. Trade gold or silver or lead or pearls or sand or corn or olive oil, anything, so long as it is real.
The gold standard - like any other mechanism has flaws. It is better insome ways that an pure fiat currency but it is worse in most.
The gold standard, in theory, limits the power of governments to cause price inflation by excessive issue of paper currency, although there is evidence that before World War I monetary authorities did not expand or contract the supply of money when the country incurred a gold outflow. It is also supposed to create certainty in international trade by providing a fixed pattern of exchange rates. The gold standard in fact is deflationary, as the rate of growth of economies generally outpaces the growth in gold reserves.
Under the classical international gold standard, disturbances in the price level in one country would be wholly or partly offset by an automatic balance-of-payment adjustment mechanism called the “price-specie-flow mechanism” (“specie” refers to gold coins). .... However, in practice this turned out not to be the case: it was wages, not capital, that depreciated in price first.

http://en.wikipedia.org/wiki/Gold_standard

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Yikes ! You want to go back to the gold standard?
Yes. Only out of fairness. I do not want the government to have the power to tinker with the economy or make winners and losers. Trade gold or silver or lead or pearls or sand or corn or olive oil, anything, so long as it is real.
Playing with monetary systems is pretty scary.
Currently, our central banks do precisely that: they play with the money they force you to use. (Actually, they just make it excedingly difficult to use any other currency but their ow.) The actions of the central banks create winners and losers by "averaging out" the economy in question.
But just reverting to the gold standard won't stop the inflationary pressure that started this thread will it?
Correct. It will not stop inflation. Inflationary pressures will be free. There will be more inflation but when it occurs, it will be striclty a result of something "real" in the economy: increase demand or supply or a discovery of more gold. The governments (through their central banks) will not have the power to create winners and losers.

The advantages of controlling inflation with central banking is real. I do not deny that. It is as real as the advantages of stealing money from rich and prosperous parts of Canada and giving it to other parts of Canada in the form of transfer payments.

What is the solution to this problem?
Trading currencies backed by commodities that have real value (i.e., gold) and thus can not be counterfeited.
Even hardcore conservatives, and I mean harcore, wouldn't agree to that
I know. I am not a hard-core conservative. I believe in extreme freedom -- more so that what any "conservative" believes.
because the Russians manipulate the market there.
Russians manipulate the market with gold??? I do not know what Russians do. I am curious. Please explain.

Nevertheless, that is not why "conservatives" want fiat currencies. The appeal of fiat currencies is specifically because you can "print" it or "suppress" without creating any real wealth to back it up. Thus, allowing the State to distort the economy -- i.e. steal from Peter to give to Paul.

The Gold Anti-Trust Action Committee among others has said that China and Russia try to manipulate the gold market by various means.

A gold standard only works when everyone agrees what the value of gold is and that becomes the monetary policy of the world. It can't work when other countries dump gold or hoard it.

Allan Greenspan has written quite a bit on this.

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The original issue vis-a-vis Alberta deals with the averaging out effect of the Bank of Canada throughout the country. Since, Alberta is on the higher end of the economic activity scale, Alberta loses out with a common fiat currency in one large market. I believe Alberta does not need a faith based currency because of the economic growth. Thus, a commodity currency would be more efficient.

Forgive me for diverting this thread.

Discussing the advantages and disadvantages of faith-based currencies and all of the different types of commodity-based currenies while exchanging faith-based reWikiGurgitations of economies of yore (while tossing in a few vegetables with the apples and oranges) belong in a separate thread. Anybody up for it?

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I'd be up for it in another thread.

Back to this one though. I shouldn't really be saying this is a BoC attacking Alberta issue. Just more of a Alberta doesn't fit the Canadian economy so why are we subjecting ourselves to the rules and policies of it.

River, you make the point about us taking workers from elsewhere, decreasing the cost of labour. Somewhat true. But now we have no more houses for them.

Alberta's economy will tank if some radical fiscal policy isn't introduced. And obviously the BoC is more interested in protecting Ontario and Quebec's declining economies (which it should be, that's where the people are!). So what do we do? Them firewalls of Harper's are sounding nice. The big issue is we'd need our own currency for any fiscal separation to be successful, and that would be very tricky to pull off without damage.

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The original issue vis-a-vis Alberta deals with the averaging out effect of the Bank of Canada throughout the country. Since, Alberta is on the higher end of the economic activity scale, Alberta loses out with a common fiat currency in one large market. I believe Alberta does not need a faith based currency because of the economic growth. Thus, a commodity currency would be more efficient.

Forgive me for diverting this thread.

Discussing the advantages and disadvantages of faith-based currencies and all of the different types of commodity-based currenies while exchanging faith-based reWikiGurgitations of economies of yore (while tossing in a few vegetables with the apples and oranges) belong in a separate thread. Anybody up for it?

There are always argument about central banks and how they effect different regions. Sometimes certain regions suffer at the expense of other areas. I can remember some parts of Canada were upset by higher interest rates when Ontario's economy was superheating. Alberta was one of those areas that wasn't in favour of higher interest rates then. For the most part over the last few years, there has been not so much disagreement about where the Bank of Canada was going. Economic magement was excellent.

If this is an argument for separation of Alberta from Canada, it isn't one that many Albertans seem convinced of.

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Alberta's economy will tank if some radical fiscal policy isn't introduced. And obviously the BoC is more interested in protecting Ontario and Quebec's declining economies (which it should be, that's where the people are!). So what do we do?
The BOC is not the only entity that can provide fiscal stimulus or breaks. The Alberta gov't has significant taxation and spending powers that could be used to cool the economy - it is not really fair to blame the BOC for a loose monetary policy when the Alberta gov't is spending money like drunken sailor and refusing to raise taxes. If an overheated economy is such a problem the Alberta gov't could introduce a 5% sales tax - I am sure that would cool the economy down.

IOW - the federation already gives Alberta the powers it needs to look after local issues - blaming the federation because Alberta's political leaders are unwilling to use these powers is unreasonable.

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Its a conundrum.

But the source of the boom in Alberta is the global price of oil. Even if the BoC jacked up interest rates, it wouldn't stop the demand for oil elsewhere. The effect would be to slow demand somewhat in Alberta while obliterating the manufacturing base down east. That's hardly a desirable outcome.

If Alberta wanted to slow its economy, it could increase taxes.

And as much as I sympathize with the argument about the government debasing the currency over time, the gold standard is impractical in a modern economy.

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This is a naive thread but I think Toro comes closest to a sensible viewpoint:

But the source of the boom in Alberta is the global price of oil. Even if the BoC jacked up interest rates, it wouldn't stop the demand for oil elsewhere. The effect would be to slow demand somewhat in Alberta while obliterating the manufacturing base down east. That's hardly a desirable outcome.

Geoffrey, if Alberta were an independent country, and it had its own currency and its own central bank, would it help matters if it raised the interest rate now?

The real problem is that the world wants more of what Alberta has to offer and less of what Ontario has to offer. Having different central banks, interest rates or currencies isn't going to change that fact.

(Incidentally, when oil is expensive, then energy in general is expensive - including of course electricity and commodities produced with electricity, such as alumnium. IOW, the effects on the Canadian economy are more subtle than you imply.)

Money is just paper. What happens in the real world is what matters. The way money affects real transactions is subtle and prone to the law of unintended consequences. You assume naively (and wrongly) that a central bank can control the real world by twisting knobs.

And as much as I sympathize with the argument about the government debasing the currency over time, the gold standard is impractical in a modern economy.
It's not only impractical, it would also be foolish. Why would we want to decide the money supply according to the ability to find a precious metal in the ground?
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That's not true August, it's not a naive outlook to think the central bank can't control things.

Decreasing the money supply would decrease investable funds in Alberta. You know the velocity of money is fairly static, less money to spend, less economic growth. Very straight forward that way, I don't see how a tight fiscal policy wouldn't help.

A large scale bond run by the Alberta government would also be effective, if they made the Bonds available across Canada they might be able to take enough Loonies out of circulation to have an effect, but it would have to be a massive insuance and that's alot of interest to be paying.

A tax increase won't do anything except grow surpluses. Surpluses are spent by governments, so the economy doesn't shrink or slow down. If the Alberta government was stashing the cash, then maybe, but I don't know how the rest of Canada would feel if Alberta started hording all the money and refusing to lend it out. This is the other problem. If we stash the cash, it has to be in non-investment accounts, so simply sitting there collecting no interest or income. If we invest it for the future... that's putting it right back into the economy.

So the issue is more complex than a tax increase... it's much easier to just increase interest rates.

EDIT: I agree with your comments on the gold standard. Monetarism is far more effective than stockpiles of gold and silver. Where would we keep it? Maybe here.

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A tax increase won't do anything except grow surpluses. Surpluses are spent by governments, so the economy doesn't shrink or slow down.
Only if the surpluses are spent immediately. The gov't could funnel the taxes into a savings account or simply donate the money to other parts of the country that do not have the same problem with inflation. Asking for higher interest rates is the same as asking for a tax on people with debt that is transferred directly to people with liquid assets so I don't see why you have a problem with tax increases but are ok with interest rate hikes. Furthermore, there is no guarantee that higher interest rates would actually do anything about the problem since the price of oil will not change.
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The government of Alberta had/has a Heritage fund. That is an example of a government not spending all the tax money.

But a large bond issuance is also raising funds. The problem with such a strategy is that it takes money out of the rest of Canada whereas your problem is to take money solely out of Alberta. Thus, you would have even more capital flow into Alberta, which is not what you need.

The Bank of Canada is not going to flatten the rest of the economy to cool down 10% of it. The rest of the country should not have to deal with what is essentially a global phenomenon.

Thus, if Alberta wants to slow, the best way is to raise taxes and not spend it.

Or, the government of Canada could increase equalization payments from Alberta to the rest of the country. That would pull capital out of Alberta, decreasing growth there, while increasing growth in the rest of the country, which would mean less people coming into Alberta.

Besides, if Alberta is going to massively reap the benefits of the tar sands, then it should also deal with the disloactions as well, i.e. $400,000 house prices.

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Are you folks nuts? First of all I contest that the Alberta economy will tank anytime in the forseeable future. Is inflation hitting Alberta, yes. Are housing prices rising,yes. Is that a problem,no. The proposed solutions to this non-problem involves taking more money out of Alberta to slow down the economy and that is simply foolish.

This province currently funds 90% of the federal equalization program as is. We have no debt or deficit and are able to fund and provide all the programs and services we desire. So we are subsidizing the rest of the nation with our tax dollars and taking care of our own citizens at the same time. There is no reason for the fed bank to interfere with our economy nor is there any reason for the federal government to take any action on our behalf to attempt to control the economy.

What is it that you people want to do create another NEP here? Don't go there!

Look the current inflationary pressures in Alberta are associated with growth. There is always problems associated with growth. What we need right now is simply the time and political space to act in our own interests. The market price of oil will continue to climb, you can expect $1.50 per litre by Christmas, or about $100.00 per barrel. Demand will continue to outpace supply for the near future anyway. To step into the Alberta economy and perhaps comprimise the necessary growth in that industry will further raise the price of fuel. So messy around with our economy will impact the entire nation in an adverse way, at least it could.

What Alberta needs to do is bring more people to the province and get the labour supply and demand issue under control first. That will reduce wages to some degree but will speed development which is limited by the labour supply. The reason housing is in short supply is because any tradesman with a brain is headed to a mega project somewhere in Alberta out in the boon docks. There just isn't enough of them left to build enough houses to keep up to that demand. With the increase in population we will require more public infrastructure as well, schools and hospitals and that kind of thing. But the bottom line is that real estate is going through the roof because of demand, and that is the simple truth. The reason for that we have already discussed, but that is the ONLY thing going on in Alberta, a boom.

On the other hand this boom is like no other that we have seen before. At this point we are talking about multi-billion dollar development that extends into the next decade. The damned government of King Ralph has simly no clue as to how to handle this situation, neither does the Tory party. What we have happening here is that the government doesn't want to spend money on infrastructure and development because they fear the impact on the new fiscal situation that we find ourselves in. They don't want to go into debt, but they don't know how to avoid it. So they do nothing and sit on their hands while the average Albertan watches home prices go through the roof. Its making current Alberta citizens rich but it is preventing any new residents to benefit. The government doesn't give a damn about the citizens, they care about their revenue streams.

Since the province doesn't get anything from property taxes they simply don't give a damn about real estate. The province doesn't deal with schools or hospitals either these things are all local authorities. While it is true that the province funds the local efforts, they do not administer them and hence the direct heat from that supply and demand issue doesn't touch their desks. See nothing and hear nothing is the motto with the Tory government.

The problem with Alberta is local, its our business because there is nothing that can be done about it from any other level. Taking money out of the province will merely detract from our ability to solve the problems we already have. Don't mess with interest rates, don't mess with the monetary system, don't do a damn thing to interfere in this local issue. We will look after it ourselves, and if we don't, that will be our problem too!

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Are you folks nuts? First of all I contest that the Alberta economy will tank anytime in the forseeable future. Is inflation hitting Alberta, yes. Are housing prices rising,yes. Is that a problem,no. The proposed solutions to this non-problem involves taking more money out of Alberta to slow down the economy and that is simply foolish.

The problem with Alberta is local, its our business because there is nothing that can be done about it from any other level. Taking money out of the province will merely detract from our ability to solve the problems we already have. Don't mess with interest rates, don't mess with the monetary system, don't do a damn thing to interfere in this local issue. We will look after it ourselves, and if we don't, that will be our problem too!

You might be pessimistic on oil prices. Explosions in Nigeria and escalation in Lebanon. Oil prices could hit $100 this week.

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The government of Alberta had/has a Heritage fund. That is an example of a government not spending all the tax money.

But a large bond issuance is also raising funds. The problem with such a strategy is that it takes money out of the rest of Canada whereas your problem is to take money solely out of Alberta. Thus, you would have even more capital flow into Alberta, which is not what you need.

Huh? Do you believ taking money out of Alberta is going to "cool the economy"?

Sorry, Jerry Fortin is dead on above. Changing interest rates will do nothing because this is not a monetary problem.

What could Alberta do? Well, it could force companies to leave the oil in the ground. If no one knew that there was oil and gas below the Albertan surface, the Albertan economy would be experiencing no "inflation problems" now.

I usually accuse the Left of confusing symbol and reality but here's an instance where even the non-Left seems confused. Money is symbolic, but it's not real wealth.

On the other hand this boom is like no other that we have seen before.
I don't know if I'd go that far. Outside of central Canadian cities, Canadians are used to boom and bust. From the Klondike to the gold mines of northern Quebec and Ontario, people know what a boomtown is like. These are usually male-dominated affairs with a few smart (female) cookies willing to hold their own. Even in Alberta, the 1970s boom was arguably bigger than the current boom simply because it was so unprecedented.

----

I will add one point. The Canadian dollar exchange rate (not monetary policy as such) would be the first place to look to absorb some of the oil demand shock.

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