When in doubt...pay off Quebec

Flaherty throws some money at Quebec's economic problems:

OSHAWA, ONT. -- Quebec offered a port in the storm to its struggling manufacturers yesterday by way of a $620-million provincial aid package to be paid out over five years.

The sector has been on a "brutal" ride due to the Canadian dollar's rapid ascent, and will get $178-million in tax relief along with $442-million for training and other assistance, according to an announcement by Premier Jean Charest.

The measures are designed to help a sector - which has lost more than 70,000 jobs in the last two years - adapt to the higher currency.

By contrast the business community of Oshawa, Ont., one of the heartlands of the country's troubled auto manufacturing sector, received concern but no concrete promises from federal Finance Minister Jim Flaherty in a speech there yesterday.

--A much better plan would be setting up a foreign trust fund for oil revenues. This would serve to push down the Loonie so that non-energy sectors of the economy could compete. It would also provide a nice nest egg for when the price of energy products takes a tumble.

Learning This Should be a Requirement for Every Degree Everywhere

Bryan Caplan on exchange rates, (he's talking about the US dollar but this applies everywhere)

Two years ago I denounced home country bias, people's propensity to invest solely in their own country's assets. International diversification is a free lunch in terms of mean-variance efficiency, but most of us pass on it. As Karen Lewis explains:

Indeed, a portfolio of 100% share in the S&P 500 is dominated by all portfolios with foreign share of about 39% corresponding to the minimum variance point B. Nevertheless, estimates from the literature put the share of US holdings of foreign equities at about 8%...

An added benefit which I didn't mention is that international diversification protect you against exchange rate fluctations. Yes, if you'd listened to me, the falling dollar wouldn't be nearly as worrisome. In fact, if you'd taken Karen Lewis' results to heart, at least 39% of your assets would be held in foreign assets - and a falling dollar would be something to celebrate.

Just don't do it publicly - or people might accuse you of being un-American!

--There you go, we really do need to get rid of the idea that a currency is some how a countries stock price, it temps politicians into creating bad policies.