Loonie Slips as ...No wait. Harper Just Stepped on a Banana Peel

As much as this government continues to try to convince us that they are on the right track, I can't help but feel I'm being derailed by subterfuge.

Top economists and market indicators, contradict Harper's statements, and until he can be honest with Canadians, how can we possibly allow him to hold onto his job?

While it would appear that changes to EI are front and centre of the debate, I'm more concerned with the direction that this government is taking is.

With no plans on how to get us out of deficit, once the recession is over, I worry that my children and grandchildren will be paying for Flaherty's lack of vision and accountability, for years to come.

Loonie slips as commodities sag
Reuters Canada
Jennifer Kwan
June 17, 2009

TORONTO (Reuters) - The Canadian dollar slipped against the U.S. dollar on Wednesday morning as the price of oil and metals weakened and global equities slid on doubt about economic recovery.

At 7:41 a.m., the currency was at C$1.1367 to the U.S. dollar, or 87.97 U.S. cents, down from Monday's finish at C$1.1346 to the U.S. dollar, or 88.14 U.S. cents.

Early on Wednesday, European and Asian shares weakened as some investors unwound trades betting on quick economic recovery. U.S. stock index futures pointed to a higher open.

The Canadian dollar was expected to draw direction from its key drivers -- U.S. and Canadian stock markets, as well as commodity prices in general, and the price of oil in particular.

"I think there's still fear about what is going to happen today with the equity market," said J.P. Blais, vice president foreign exchange products.

Typically, equity markets are an indicator of investors' risk appetite.

That along with a drop in oil prices to around $70 a barrel, as well as weaker gold and base metals prices, is not positive for the Canadian dollar. As well, investors are also eyeing Canadian political developments for the possibility of a summer federal election.

"That's not necessarily bringing confidence into the loonie," Blais said of those combined factors.

The Canadian government has pretty much been in crisis since the last election, reaching it's peak when Harper prorogued Parliament to save his job, but of concern to me is the statement: 'global equities slid on doubt about economic recovery'.

Our economy is still very much dependant on others, especially the U.S., and if there are doubts about recovery, it certainly contradicts the Conservative's 'worst is over' claim.

Don Drummond agrees:

TD warns that Ottawa's forecasts are way off
Paul Vieira,
Financial Post
June 02, 2009

OTTAWA -- Canada risks a return to permanent deficits unless the federal government is prepared to "clamp down" on spending once a meaningful economic recovery is underway, economists at Toronto-Dominion Bank said Tuesday.

The bank warned that Ottawa's current budget balance projections are off by a significant degree. TD economists Don Drummond and Derek Burleton say in a report the federal government will run a cumulative deficit of roughly $167-billion over five years, or nearly double what Ottawa projected in its most recent budget.

When it unveiled its two-year, $40-billion stimulus plan, the federal Conservative government tried to allay fears about the immediate bulge in the deficit, saying there was a plan to return to surplus in 2013-14, with a $700-million windfall. But the TD report said in that fiscal year, it projects a shortfall of $19.4-billion.

TD's prediction is based on its own economic forecast, which it acknowledges is "substantially" weaker than what is envisaged by the Department of Finance and other Bay Street economists. The forecast comes after Finance Minister, Jim Flaherty, dropped a bombshell last week when he warned of a $50-billion deficit for this fiscal year; and the Department of Finance said Canada officially fell into deficit, posting a preliminary shortfall of $2.25-billion in the last fiscal year.

That would mark the first deficit in a dozen years.

Mr. Drummond, TD's chief economist, said in an interview that his "nagging worry" is that Ottawa has no plan to return to surplus and avoid so-called structural deficits. Prior to 1997, Ottawa recorded 34 deficits in 36 fiscal years. But after undertaking spending cuts, especially to transfer payments issued to provinces, the federal government was able to record 11 straight budget surpluses up until the last fiscal year.

"There is a point where [surpluses] never return," Mr. Drummond, a former Finance official, said. "So once you have a whiff of meaningful economic recovery, Ottawa is going to have to clamp down on spending growth -- which is going to be tough, because spending growth has been like an addiction we've been used to."

Since the late 1990s, after the federal government successfully steered the country out of deficit, annual program spending has increased at a rate of between 6% and 8%.

Mr. Flaherty told reporters that Bay Street forecasters are entitled to their view.

"I am sure different economists will have different views," he said. "But I am not going to respond to this economist and that economist, day after day."

The federal government plans to issue its own report this month on measures announced in the last budget, which might include updated fiscal forecasts.

The TD analysis indicates the only way the budget gets close to balance in 2013-14, as anticipated, is if Ottawa freezes program spending growth after fiscal 2012-13, which is when TD expects the economy to fully rebound from the current downturn. If that were to happen, it would record a small deficit of $1.7-billion in 2013-14, followed by a $12-billion surplus in the next fiscal year.

Otherwise, spending growth could be held at 2% following 2012-13, which would lead to a $5.7-billion surplus in 2015-16.

In the budget, the government said its plan to return to surplus would entail an effort to "carefully" manage spending. For instance, it limited the growth in equalization payments to the provinces prior to the budget. Ottawa also said it would review department spending to ensure necessary savings are found, and look at Crown assets, such as agencies and land, to see if some could be sold off to the private sector. Ottawa has already announced plans to find a buyer for some assets belonging to beleaguered Atomic Energy of Canada Ltd.

John McCallum, the Liberal finance critic, said the report undermines an already struggling Finance Minister who, he added, was projecting annual budget surpluses back in November.

"We can't have confidence in anything he says about returning to surplus," said the former Royal Bank of Canada chief economist.