The US Fed has cuts its benchmark federal funds rate from 4.75 % to 4.5 %. The Us dollar continues to weaken against the Canadian dollar today reaching a 50 year low with the Canadian dollar approaching 1.06 US. Oil is trading at close to 95 dollars a barrel and the American sub prime mortgage market crisis is being described as a once in three generation catastrophe which has led to billions of dollars of losses and many 1000s of bankruptcies.
This set of gloomy news will put increased pressure on the Bank of Canada to cut its own overnight rate which it has stubbornly refused to cut despite the huge rise in the exchange value of the Canadian dollar and all that this implies for the future of Canadian manufacturing in Ontario and Quebec.How long can our oil and gas boom sustain the Canadian economy with such a powerful loony and such a constrained domestic base for Canadian manufacturing output.
Something has to eventually give and the likelihood is that will be the central Canadian economy where unemployment is bound to grow as manufacturing exports shut down and the Alberta oil boom continues.Since Alberta and the western provinces have a population of 9.4 million people and the US 300 million it doesn't take much math to figure out the net impact of an overvalued dollar fuelled by an oil boom.It really is time for the central bank to cut their overnight rate and combine a stimulative monetary policy with a moderately less contractionary fiscal policy to rescue Canadians from a an impending major slowdown.
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