This week, Alberta Premier Alison Redford went to America and Ontario to “sell” the oilsands and made the point that Ontario should be supportive because the oil industry buys billions of dollars worth of goods and services from Ontario firms and manufacturers. Ontario Premier McGuinty countered that the booming oil industry had turned the Canadian dollar into a “petro-currency”, and that the high dollar was destroying the competitiveness of Ontario manufacturers.
This is where poor Dalton doesn’t understand economics. The low dollar environment that existed from 1989 through 2006 created an excuse for Canadian manufacturers to avoid investing in productivity improvements. Lower productivity per worker was masked by the low cost per worker. And while the oil and mining industries and high commodity prices have something to do with that, these are not things that the Alberta oil industry created.
Further, currency fluctuations happen for many reasons. And if Dalton thinks he has a problem now, he should be preparing for a Canadian dollar that is worth substantially more than the USD. Think $1.30+. Why?
Devaluation. The US government is broke and running more than $1 Trillion dollar annual deficits. But rather than cut spending and rationalize taxes to balance the books, they have turned to the Federal Reserve to buy their debt so they can continue spending into oblivion. The Fed is using something they have politely termed “quantitative easing” to obtain the money. What they are really doing is expanding the money supply, which is inherently inflationary. Only the USD status as global reserve currency and the peg of the Chinese yuan to the dollar has prevented devaluation. But it can’t hold off forever. The USD will devalue in the near to medium term, and the Canadian dollar will very likely shoot higher as the Canadian situation is better.
Of course, if Dalton keeps spending money profligately, to the point that Ontario needs to be bailed out by the rest of Canada – or worse it defaults – then the Canadian dollar will tumble right along with the Americans’.
Maybe that is his plan.