Canada – Resource Boom or Manufacturing Boom? Why Not Both!

by John Brian Shannon

I’m a big fan of Saskatchewan Premier Brad Wall. You can’t argue with success and the province has excelled with Brad Wall as premier. Well done on all counts, Premier Wall.

NDP leader Thomas Mulcair has a point, however. By devaluing the dollar, a huge part of Canada’s economy (almost 50%) could ALSO start to perform at a high level instead of continuing to sputter along at half-speed.

Not just the resource-based provinces romping along as they have been doing — but manufacturing provinces could return to full performance.

For manufacturing, a lower dollar will drive the demand of exports higher, Canadian production will ramp up, employment will increase. And we all know where – Ontario which is Canada’s largest ‘value added‘ economic zone.

Some people use the term manufacturing, but I call it what it really is, value-added. We take our provincially-owned raw resources and add value to those resources by manufacturing something from them or processing them, instead of merely selling our finite resources out of the country and getting nothing more from them.

Manufacturing has stalled in Canada, due in part to Canada’s strong dollar – our exports have become uncompetitive over the years as the dollar has risen. A direct correlation exists between those two stats.

If you want the biggest economic engine in Canada to suddenly begin to receive larger volumes of orders from other countries including the U.S. our biggest trading partner, causing those goods to become cheaper is the way to go.

Devaluing the Canadian dollar has NO EFFECT on Canadian consumers at all, unless you are purchasing goods and services from outside Canada. And if you are buying goods from other countries – shame on you – buy Canadian!

If devaluation inconveniences you because you purchase goods from other nations, a booming economy (Cdn resources PLUS Cdn manufacturing) firing on all cylinders should more than make up for it!

Some may wonder about losing our strong resource sector exports, which are already performing very well due to high demand for them in the rest of the world.

The price of raw resources will not drop when demand is so high.

It’s only different in the case of Canadian coal exporters who are facing dropping demand, which equals lower prices ($192.86 in July 2008, now at $99.75 in May 2012) devaluation could help, however, as a lower price will increase demand.

Those coal quotes are the 60 month (thermal coal) contract price from indexmundi.com — but are representative of world thermal coal price trends: http://www.indexmundi.com/commodities/?commodity=coal-australian&months=60

It is better to sell lots of coal at $85.00 per metric tonne, than hardly any at all at $100.00 per metric tonne.

Tourism to Canada would also receive a major boost as our prices would become more affordable due to devaluation of our dollar.

So, what’s the downside of getting Canada’s manufacturing sector and related (which together represent up to 50% of Canada’s economy) again firing on all cylinders — by devaluing the dollar by up to 20%?

As long as demand remains high for gas and oil there should be little downside for Canada’s resource-based provincial economies, as that high demand dictates prices will stay the same, or continue to increase.

I can understand Premier Wall’s concerns for Saskatchewan’s resource and agriculture based economy – but at this point in time, world demand remains high for all resources – and for coal too – but only at the right price.

Follow John Brian Shannon on Twitter: https://twitter.com/#!/JBSCanada

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Foreign Policy Magazine’s “A Kremlin Made of Sand” – MY COMMENT

Russian President Vlad Putin was the man who brought in 2-consecutive-term limits for the office of Russian President and without any complaining when the time arrived he did exactly as the Russian constitution required – he stepped down from Presidential office. All in all, pretty democratic of him.

Under his leadership and under the leadership of Dmitry Medvedev, the Russian economy has never been better – and yes, just like all economies these days a slip-up could prove costly. It’s the same everywhere it seems!

If the oil price happens to slip below $115. per barrel, I’m certain the Russian’s can simply defer some of their spending programs, until the oil price picks up again. Having hit ‘peak oil’ a few years back, I doubt prices will be dropping much, nor for long – as demand is still growing as the world economy returns to normal.

Paragraphs 3 and 4 (impressively and highly annotated) from Wikipedia — attest to Vlad Putin’s management successes during his first two terms as President and one term as Prime Minister. This information is widely accepted as factual and without contest.

“Putin has overseen a return of political stability and economic progress to Russia, ending the crisis of the 1990s.[4][5]
During his presidency, the Russian economy grew for nine straight years, seeing GDP increase by 72% in PPP (sixfold in nominal),[6][7] poverty decrease by more than 50%,[8][9] and average monthly salaries increase from $80 to $640.[6][10]
These achievements have been ascribed by analysts to strong macroeconomic management, important fiscal policy reforms, surging capital inflows, access to low-cost external financing and a several fold increase in price of oil and gas.[11][12][13]
The fast formation of the modern middle class in the country, the 2.3 times increase in real incomes between 2000-2011 as well as improvements in healthcare and public order allowed Russia to achieve the highest level of life expectancy in its history.[14]

As Russia’s President, Putin passed into law a flat income tax of 13%, a reduced profits tax, and new land and legal codes.[12][15]

As Prime Minister, Putin oversaw large scale military reform and police reform. His energy policy has affirmed Russia’s position as an energy superpower.[16][17]
Putin established a number of national champions, i.e. state corporations which oversaw the restoration of high-tech industries in the country (such as nuclear industry and defence industry).
Significant rise in foreign investments[18] contributed to the boom in such sectors as automotive industry.

Economic megaprojects which Putin endorsed have included the construction of major export pipelines (notably ESPO, Nord Stream and BPS-2), the restoration of the global satellite navigation system GLONASS, and the building of infrastructure for top level international events held in Russia (2006 G8 Summit, APEC 2012, and multiple sporting events).”

http://en.wikipedia.org/wiki/Vladimir_Putin

As a person widely-known to not like surprises, he welcomes any opportunity for communication with world leaders, which makes them feel quite comfortable enough to pick up the phone to discuss any matter at all with him — oh, how unlike the Soviet era of leadership!

We in the West don’t fully appreciate how fortunate we are to have Vlad Putin holding the position of the President of Russia.

Follow John Brian Shannon on Twitter: https://twitter.com/@JBSCanada