10,000 Unionized Canadian Public Sector Workers get a 6.64 percent raise in the middle of COVID-19, Prepare yourselves for Domestic Price inflation – July 22, 2020,
If the world was on a gold Gold standard, we’d be experiencing a deflationary economy right now, but we’re on a fiat monetary system and fiat monetary systems include the forex markets, fiat and forex is an interesting way to skew and distort the economy. So although the value of the Canadian dollar might continue to rise next to the Greenback as the markets fear the notion of a Joe Biden presidency, domestically, there is no way to hide inflation.
In Argentina as an example, their unionized government got so big so fast that it’s nearly impossible for the private sector to pull any profits out of the Argentinian economy. It’s not to say that a person can’t make money in Argentina, but it’s very complex.
In Canada, we still have the semblance of a market economy, but Justin Trudeau’s easy-going attitude towards federal spending has a massive price tag that will be paid via inflation. When a section of the economy is basically nationalized, there is no reason for that portion of the economy to be efficient.
Under a Gold Standard, governments have to be fiscally responsible, under a fiat currency cash flow is king-or-Queen if you’re a feminist I guess. That’s the problem the Liberals don’t see coming as they spend. Cashflow or the inability to pay down debt with money derived from the private sector.
Income taxes paid via the public sector come from the private sector, the public sector is none income-producing entity, it’s unionized workforce gets paid via taxation of the private sector, if the public sector is paid via printing money it’s a signal the public sector is too big, however, the gift and the curse of fiat money is that governments can get away with paying public sector bills by printing money, but there’s a price for this it’s called domestic price inflation.
The Euro as an example on the Forex markets trades higher than the Greenback, however, in many European nations, their cost of living is higher than most U.S States. In Canada, our economy, for the most part, was constructed to appease Ontario and Quebec’s(our most populous provinces) big governments and because of this, we have an economy dependent on a devalued loonie.
This is ass-backward and the mere fact we’re able to do this gives you an idea of how distorted our economy is and how problematic things can get if the Government is forced into a position of austerity. On paper, the Canadian economy is an easy fix, but once you actually get into the human lives that are affected by all of this wage and price distortion, that’s when you’ll comprehend the Argentina dilemma.
An above-market wage is an above-market wage and being in a non-competitive job market equates to income you’d never make in the private sector, furthermore and this is the most important factor, the Private Sector in Canada is shrinking! Actually it shrunk and it’s not a guarantee that it will come back, adding fuel to the problem, Trudeau’s cabinet hasn’t talked about cutting any regulations, in fact, what appears to be happening is Justin Trudeau is adding on more regulations.
A unionized pay-raise in an added regulation/burden on Canada’s private sector, carbon taxes haven’t gone anywhere, they’re still here and this doesn’t bode well for a manufacturing sector in Canada dependent on a lower Loonie. Joe Biden could win the 2020 election, the last time a Democrat was president the Loonie on the Forex markets went up.
In order to bring the value of the loonie down, to appease manufacturing, Stephen Harper had to stimulate the housing market with lower interest rates. Could Canada go negative with interest rates? Sure we can, but unlike the other countries with negative interest rates, our manufacturing sector isn’t exactly healthy. Toyota, Honda, Sony these in-demand quality brands, and others in Japan allow Japan and their zombie economy to get away with negative interest rates. Furthermore, Japan’s poor actually save money, Canadians with a higher cost of living save less money than do Americans.
I still think it goes overlooked that Canadians needed the governments’ help to pay their mortgages, think about how hard it is to qualify for a mortgage in Canada, and then think about the reality that Canadians are a paycheck away from defaulting on their mortgage. I personally think a lot of Canadians are out of touch with how bad the finances are, but once it’s inflation takes off, we’ll learn!
Interesting times ahead!