More layoffs in auto sector Bank of Canada response

The Bank of Canada`s recent rate increase once again flies in the face of the actual evidence in the economy as opposed to the theoretical conceptions that grip the minds of their economists.
Because of their NAIRU obsession that inflationary expectations automatically begin at 6.5 to 7 % unemployment they insist on raising rates when in fact this policy is foolish coming on top of growing problems with our exporters facing an ever stronger Canadian dollar in the US and the growing number of layoffs in the auto sector in Ontario.Added to our troubles the latest statistic on US growth shows a sharp slowdown which if it persists will make the Fed`s recent increases in rates seem equally foolhardy.

Once again the straight jacket of Friedman inspired monetarism and the NAIRU and the rational expectations obsession with avoiding fiscal policy initiatives are going to damage life prospects for millions of North Americans. Its quite funny that many of these economists are obsessed with free competition but are unwilling to apply the same criteria to the realm of ideas.

Here in Quebec I was recently on Radio Canada debating Quebec`s debt difficulties with Jean Luc Landry of the Quebec association of economists on Jean Dusseault`s show Sans Frontieres. Once again the neo-cons in the Quebec government and business circles have been trying raise the flag of further compressions budgetaires that is cut backs in order to pay down more of the debt.

A very foolish policy when unemployment is 8 % in the Province and there are major problems with the health care system and unmet needs in social policy, housing and infrastructure. Since the Quebec debt in relation to the GDP/PNB has been falling nicely as the budget has been close to balanced and the economy has been growing there is no need for retrenchment.

Of course, I tried to explain this as the virtuous path in comparison with the damaging one of greater fiscal conservatism. In the process I got some pleasant support from Landry who pointed out that debt instruments were important for the financial markets in order that they would have quality investment paper to buy.

But Landry also pointed out correctly that the financial markets in Canada are too underdeveloped forcing our Provinces to finance too much of the debt in foreign markets. Clearly it would be a much better idea for our own capital markets to be deepened and widened. Here the Bank of Canada could play a much larger role in buying and selling the bonds of our Provincial Governments , as well as those of the Federal Government. More on this later.