Canada is Not The Master of its Destiny

As expected the Bank of Canada has held rates at 1 per cent. In fact some economists believe the bank will leave rates unchanged until 2013. That means cheap money is here to stay longer than first thought.

Bank of Canada Governor Mark Carney continues to use the slowdown in the global economy as a crutch to leaving rates near historic lows.  He’s again pointing the finger firmly at the European debt crisis indicating he can’t raise rates until the continent is able to gets its issues under control. For the first time he is using the R-word and hinting we could see a “brief recession” in Europe.

In light of declining commodity prices, financial market volatility and the sluggish growth in the U.S economy,  he can’t raise rates and hurt any economic growth prospects in Canada. What is more interesting, the Central Bank is downgrading its growth forecast and warning of rising inflation.

This dovish report from the Bank of Canada is understated to put it mildly. All fingers point to another global recession much deeper than the one we experienced in 2008. Economies around the world continue to take on more debt, suffer from higher unemployment and low economic growth.

The fact that Carney’s hands are tied with interest rates at 1 per cent is a clear indication Canada’s future remains uncertain.  He wants rates to rise. As a responsible Central Banker he knows overnight lending rates should be closer to 4 per cent.  But right now he can’t, making it harder for Canadians to afford their day-to-day expenses as their salaries plateau but prices trend higher.

What Carney should be doing is better preparing Canadians for what is inevitable, another global slow down. Leaving rates where they are is making life more expensive. The proof is in the data. Statistics Canada announced last week Canadians are paying more for goods and services at a rate that is out of step with normal inflation.

So as Canada’s economy hobbles along, we continue to be in a wait-and-see mode and this is what makes the officials in our country nervous. We are not the masters of our own destiny, our economic future hinges on the success of other nations. The U.S unlike Canada is still able to make decisions that can change their fortune. They have the ability to implement QE3, they can still help European nations and the Greenback remains the world reserve currency.

So the crutch that I referred to at the beginning, it’s not an excuse that Carney has made up. It’s a reliance that Canada has on the rest of world. If one thing is to change in this next global slowdown it’s that Canada should emerge with its own identify. The ability to make decisions on it own merit. I agree we are not an island and Carney is doing the right thing by looking at the rest of the world before he makes a decision for our country. But the decisions have to be based more on if this will better Canadians lives not if it will protect us from the mistakes of the rest of world.

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