Presumptuous

It may seem presumptuous for this economist to disagree with the comments and actions of the U.S. Federal Reserve Board.  It raised interest rates by 0.25%. After all, it has on its staff 300 PhD economists.  Nevertheless, this column presents a different point of view.

Curiously enough many analysts interpreted this as good news, reasoning that it suggested support of stronger U.S. economic growth which should help the Canadian economy. Maybe the higher interest rates will put downward pressure on the Canadian dollar, which should stimulate our exports a bit.

Optimism of the Trudeau government is premised on the belief that big deficits and currency debasement will help the economy. That overlooks the very crucial negatives and distortions that this course entails. Clearly this makes it difficult to maintain growth.

There is the lingering hope that the Chinese economy will sustain demand, but even that economy is based on more hope than logic. Europe is experiencing a pronounced slowdown too.

The mainstays of our economy have been housing, where prices are reaching a level whereby affordability is a big question. Automobile sales have reached record levels, but such sales are cyclical, so one hopes that good times will continue for some time.

In order to remedy the distortions most nations are in an austerity mode, and that is not a good sign for the economy. The Trudeau administration is planning to increase spending on infrastructure, and that is an important plus. However, the weak Canadian dollar means import costs will soar.  Witness the already rising costs of food imported.

Overall then the outlook for the North American economy does not provide much cause for optimism, notwithstanding the actions and comments of the U.S. Federal Reserve Board. According to this economist then, a pessimistic word of caution is in order. We certainly will prosper over the longer term.  Meanwhile extreme caution should be the byword.