Japanese market rises anticipating Fed rate cut

Japanese stocks rose in price in anticipation that the US Federal Reserve will move to cut their trend setting interest rates at their next meeting Dec.11, 2007. One of the governor's of the Fed Donald Kohn has stated that the US conditions have worsened more than he had previously anticipated and strongly hinted that he would favour a rate cut come Dec. 11. The chairman Ben Bernanke has also suggested that the risk of recession is now stronger
and a rate cut needs to be considered.
If this happens the Canadian central bank will be under great pressure to cut their trend setting overnight rate because of the slowdown in manufacturing, the impending closure of several paper and pulp mills and the general chill   among Canadian exporters because of the still high exchange rate on the Canadian dollar. The BC forestry sector which accounts for a large chunk of BC employment and economic activity is also being harmed by the high dollar and the slowdown in US demand for their product.The "new" classical macroeconomics and rational expectations trained economists at the Bank of Canada are ill equiped to understand what is happening but they will know soon enough about the consequences of excessive bank rate if they fail to take action at the next rate setting.

In the meantime the dramatic testimony of Karlheinz Schreiber will likely mesmerize our politicians in Ottawa while the far more threatening developments on the business cycle side of the ledger are largely being ignored.

The Bloc Québecois has at least raised the problem of the excessive and contractionary surpluses being run by the Government with the balance all being devoted to debt reduction rather than long overdue investments in infrastructure, re-equiping the military, social housing, education and better medical care. It would be useful if the other opposition parties did likewise.