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.

More on Exchange Rates

I'm sorry but this really can't be said enough, here's an excert from the Progressive economics forum:

The unprecedented surge in the Canadian dollar from 85 cents US in early 2007 to as high as $1.10 in early November is deeply disturbing in terms of its implications for the health of the economy and the job market. Very rapid exchange rate appreciation is bad news for most enterprises exporting abroad, or competing with US and Asian exporters in the Canadian market. The especially vulnerable manufacturing sector has already lost another 82,000 jobs this year, and is widely expected to cut more jobs and close more operations in 2008.

An exchange rate at or above parity will destroy cost competitiveness for large and important portions of the Canadian economy, notably manufacturing, but also tourism, cultural industries and those selling services into the US and Asian markets. Parity raises the fundamental question of whether the resource boom will destroy a significant part of our current economic base, greatly exaggerating regional differences.

Exchange rates can and do ‘over-shoot’ the level justified by fundamental factors, with permanent structural damage being inflicted if a serious over-valuation persists.

--there you have it, stop gloating and start hoping the loonie goes down! Get the full version here