An Econoclectic Perspective
this is probably a dump question but does that only apply to US bonds or canadian bonds too?
Not a dumb question at all. I'm slightly less concerned about Cdn bonds than I would be about UK bonds.
Given that finance markets are international in scope, the Cdn markets will certainly be affected as well.
The prevailing current account rebalancing argument seems to predict a dropping US$ and associated rise in US interest rates. The only point of disagreement among serious commenters seems to be the timescale and degree of pain that this will cause in the US (i.e. the effect on the US housing bubble you mention). This should be non-inflationary in Canada since the price of US goods should drop here along with the US$ so I don't see why it would motivate the Bank of Canada to increase rates, even though there will be a larger rate spread between Canada and the US (and between the rest of the world and the US as well). I guess this spread will increase until it eventually gets big enough that the US dollar stops dropping and a new current account equilibrium is reached. Given this, wouldn't Canadian interest rates stay low and hence bonds stay attractive? Am I missing something? (boy...this stuff always gives me a headache). It also implies that cross border shopping will once again be the new national pastime.
You nailed it. Ever since Bush's speech this has been keeping me up at night.
Let's just hope that the recent Instapundit-led "Pork Busters" movement takes hold. I no longer underestimate the power of the blogosphere to make things happen. Call it a "leading indicator"!
There's always the option of paying for it The Kennedy-Reagan way - with a tax cut.
Commenting by HaloScan
