Tuesday, March 25, 2014

Is Harper trying to devalue the loonie?

When Harper appointed Stephen Poloz to head the Bank of Canada, many in the financial world were taken by surprise.

There was speculation his background at Export Development Canada would make him sympathetic to the manufacturing sector hurt by the strong loonie — which made exports more expensive killing hundreds of thousands of manufacturing jobs.

People skeptical of Harper believed he might be trying to install a puppet at the central bank, which is supposed to operate at arms length from the government.

Perfect storm

Recently a perfect storm of poorly-chosen language by central bankers is believed to have put the loonie on a downward spiral.

First Poloz gave a gloomy assessment of the economy where he refused to rule out a cut to interest rates (when many expected a time table for raising them.) Then the newly-minted chairwoman of the US Fed, Janet Yellen, came out hawkish on interest rates suggesting they could be raised a lot sooner than expected.

Poloz’s language caused the loonie to weaken; Yellen’s caused long-term interest rates in the US to increase and sent the greenback flying against other currencies.

Manufacturing an export boom

Now there’s speculation that Harper wants the dollar devalued to trigger an export-related economic boom in time for the 2015 election — something similar to what happened in the late 1990s when the loonie fell to record lows.

This would be ironic considering Harper attacked Mulcair last year over his Dutch Disease remarks (the idea an overvalued bitumen dollar was killing the economy in provinces like Ontario and Quebec.)

If Harper is a recent convert to the Dutch Disease theory — and he is manipulating the Bank of Canada to devalue the loonie — don’t expect him to come out of the closet any time soon. This will be just another in a long line of poorly hidden agendas.

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