Bigger threats to our fragile recovery

Jim Stanford, Opinion, The Globe and Mail:

The government has indicated its willingness to interfere in normal contractual relationships between private parties, even dictating contractual outcomes, in the interests of preserving Canada’s economic momentum. That opens up a lot of terrain for shepherding our recovery. So let’s assign Ottawa’s control freaks to some truly important economic protection work.

Gasoline prices: Even at $1.25 a litre, gas prices will rip $40-billion from the pockets of Canadians this year. The soaring prices are a big reason why consumer spending has stopped in its tracks – an alarming development that could precipitate a recession. And you can’t invoke “market forces” to explain the prices. They’ve been driven up by speculation, fat oil industry profits and OPEC’s continuing power.

Interest rates: The Bank of Canada is holding its prime rate at a historically low level. But the gap between that rate (which chartered banks pay on their own borrowing) and what banks charge their own customers has widened substantially. Spreads on credit cards and small business loans are even wider. No wonder the Big Six banks made $20-billion in profit last year – but no wonder borrowing by consumers and businesses alike is stuck in its tracks.

The loonie: According to the OECD, the fair value of our dollar (based on purchasing power) is 81 cents (U.S.). Currency traders have pushed it 25 per cent higher, jeopardizing Canada’s ability to sell anything (other than oil) to world markets. Again, savings on imports aren’t passed on to consumers. But the pain to our export industries and the threat to our future growth are real.

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