Montreal, February 16, 2002  /  No 98  
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Denys Bourbeau is President of Lucaya Capital Fund and lives in the Bahamas.
by Denys Bourbeau
          According to Finance minister Paul Martin, the Canadian dollar is down because of the US economy. That's too easy. Everyone knows it has been going down good times, bad times. In fact, according to the National Post, since the Liberals have taken office, the dollar has lost 18% against the US dollar. Economists predict it will improve by year end. Is it not what they said last year and the year before? You do not have to be an economist to see that every one is conveniently avoiding the real problem. 
          A 25% rate cut here and there will not do it for the Canadian economy. Interest rates are already low. What are they going to do when they are at 0%? Rates are too low and not reflecting the premium investors will demand for a speculative currency such as the Canadian dollar. Intervention in the money markets is not the answer either, it only provides a bid, or if you prefer a gift, to the seller. The value of the money will eventually come back to where it should be. Unless you get a real compensation, anyone in his right mind will choose a stronger currency. This is because at present the devaluation trend of the currency far exceeds the expected return. 
          What the market is telling us is that Canada is paying rates as if it was a well run economy. Many say it's the market, so we can not do anything about it. We cannot have it both ways, the dollar floats but not the rates. The fact is that by forcing rates down the Canadian dollar is kept artificially low. This is very different than what the minister says when he mentions the US economy.  
An irresponsible policy? 
          Could it be that the real reason for this is irresponsible short-term policy? It is convenient to create the good old illusion of prosperity. Canada is not competitive so why not try exporting by default? Replacing efficiency by a cheap currency, giving out the country little by little. This is done because the Canadian government, the people that decide for you what is best for you, do not intend to lower the size of its huge bureaucracy. This is the new order, the socialism for the rich philosopy. 
          So for a while lowering interest rates does hide the real problem. What they may not want you to know is, the problem is not the interest rate, it’s the taxes. 
          Lowering taxes would rapidly create real wealth growth and employment. Then and only then the value of the dollar would reflect this positive situation and slowly appreciate. Then and only then rates would come back down because the market would demand less from a competitive and sound economy. 
     « To export on the basis of efficiency instead of a devaluated currency would end this 20-year plus disaster. Otherwise let's convert immediately to the US dollar while we still have 62 cents. »
          It is hard to believe that some politicians are actually saying that a low dollar is good for our exports. If it was true, in the last 100 years Mexico would have been one of the richest countries in the world. It is Lenin who said that the most efficient way to destroy a society is to debauch its currency. 
          It has become a vicious circle which a few actually profit from. What would you do if you were paid in $US for your exports? Of course you'd keep it in US and guess what, more and more large companies are doing it. Until the government lowers the ridiculous tax burden on its citizens, the reality will be that only higher interest rate spreads will stop the dollar from falling. The government should be accountable and stop transferring the cost of its extravagance to the people. 
The public has to pay 
          Over time there are very serious consequences to fiscal irresponsibility. The public eventually has to pay, in the form of taxes, public debt, and devaluation. Ask yourself how productive to you is the 50% of your income which is deducted from your pay check, the TPS, TVQ, provincial non deductable municipal taxation, gasoline taxes, you name it? Does it contributes more to your well-being than if you had a voluntary choice? What service would you voluntarily buy from the government and at what price? What choice of products can you say you have from your master? Choice makes you appreciate the meaning of freedom. 
          There is obviously too much non productive money in Canada. Many say lowering taxes is an irresponsible solution. That is outrageously demagogic, it is blackmail. It's like saying: if you do not pay us we will spend it anyway, create a deficit, borrow and cause a drain of new money from the real economy. Why do they have the right to spend irresponsibly what does not belong to them? Taxes must be immediately and substantially decreased and politicians must learn to do like the rest of us. Free people have a right to an accountable form of government. 
          Raising rate spreads would not be popular but then they should not have been lowered in the first place. The alternative, artificially low rates, means a lower dollar, which means a drop in the standard of living like an invisible tax or a pay cut for all Canadians. 
          To export on the basis of efficiency instead of a devaluated currency would end this 20-year plus disaster. Otherwise let's convert immediately to the US dollar while we still have 62 cents. Of course, many politicians do not like that since they would lose control of the money supply and would have to become more accountable. But it might at least have the effect of turning our present masters a little bit into our servants. 
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