From: dbowman@shade (Don A. Bowman)
Subject: Re: AAA credit rating downgraded
Organization: University of Waterloo
X-Newsreader: TIN [version 1.1 PL6]
Date: Thu, 15 Oct 1992 22:51:02 GMT

Wayne Smith (wlsmith@valve.heart.rri.uwo.ca) wrote:
: In article <Bw6DMo.Ht4@watserv1.uwaterloo.ca> dbowman@rainbow (Don A. Bowman) writes:
: >
: >[Front Page Financial Post]
: >
: >Canada's AAA credit rating has been, for the first time in history,
: >downgraded to AA+. This has just cost us as money must be borrowed at 8.07
: >instead of 7.7%.
: >
: >For those who still don't believe the economic consequences of a NO vote,
: >consider: the people who matter do. (Standard+Poor said that a major reason
: >for the downgrading was uncertainty over the results of the referendum).
: 
: No they did not say that.  Can't you read?
: here's what they said:
: "The downgrades reflect the progressive deterioration in Canada's current
:  account deficit in recent years, a consequent sharp increase in its already
: sizable external debt burden, and the prospect of only a moderate 
: improvement in the balance of payments in the medium term" S&P said.

It appears I have misquoted them a little. I am sorry. Indeed, S&P said only that
"Uncertainties about the future of the confederation, if they persist, could
weaken investor confidence and hamper the conduct of economic policy..." [FP,
Thurs Oct 15, 1992]

It was the FP reporter who said the Referendum caused the downgrading as one
of the reasons (foreign debt being the other).

: 
: You blatently lied about why S&P lowered Canada's credit rating.  If
: Canada is going to be seen as a good place to invest, then we must get our
: finances in order.  We've had shitty, financially irresponsible and
: politically unaccountable politicians governing us for too long, and
: now they want to consolidate their positions by creating this constitution,
: while saying that they can't improve the economic situation while 
: the negociations are going on.  Then what the hell is the rest of the gov't
: doing in the mean time.  WASTING OUR MONEY and BORROWING from overseas.

Politically unnaccountable? Who elected the Current government for their
second mandate? Couldv'e kicked them out then. Financially irresponsible? You
mean Trudeau? As far as I am concerned, the current government has done
moderately well at debt control, certainly better than you or I could have
done.

Borrowing from overseas? Where else will you get the investors? What cuts
would YOU make? Would you cut unemployment insurance benefits? Welfare?
Education? Medicare? Well, speak up. And don't give any of those pat answers
about cutting politicians salaries. Political salaries are a precious little
portion of our costs.

: 
: >My reason for posting:
: > How can we keep our economy from being decimated in the short term by this
: >uncertainty?
: 
: How?  Just like we kept our economy on the rocks during the 80's.
: Our political caretakers are currently in the process of strengthening
: their own political power, and they have NO track record of creating
: or maintaining a financially sound form of gov't. 
: 
: If there's a bigger laugh then their assurtions that this deal will be the
: end-all of negociations, it's that they will fix our financial trouble
: at the same time.

To the best of my knowledge the YES side is not claiming that the deal will
end all negotiations. I think it is only people like you who put these words
in their mouths. Instead, the YES side is saying that a YES vote will give us
a basis for future negotiations, where a NO vote will send us back to the
start. If anything, it is some factions of the NO forces (not all) with their
advocation of no more negotiations that are causing problems. If we have no
negotiation about CLEARLY existing problems, we go to breakup for sure.

The claim about fixing the financial troubles works both ways. If big
business (all the chartered banks, major corps, money lenders etc) believe
that a YES vote fixes the economy, it will. If they believe a NO vote
decimates it, it will. This logic is irrefutable -- if you are the guy who
decides when to buy+sell Canadian dollars, and you decide to sell them all as
a bad risk, the dollar goes down. If you are the person in charge of credit
ratings, and you downgrade it, interest rates go up. The Bank of Canada rate
will certainly go up many basis points tomorrow because of the Credit
Downgrading.

Just ask yourself this -- even though you hate politicians, why would the
major banks, politically neutral, no political capital to gain or lose, why
would they come out and say a NO vote means instability if they didn't
believe it? What possible reason could they have? The president of the Bank
of Montreal is not elected. He has no electorate to please. Still he has
voiced his (not opinion -- prediction) that a NO vote means an unstable
economy, high interest rates, and a shrinking dollar. He also said a YES vote
means the government can directly address the problem of the economy, the
uncertainty will be over, and the dollar will stabilise leading to downward
pressure on interest rates. Do you think the politicians paid him off? Of
course not. 

Further, why is it that *ALL* leading economists are predicting this? Read
that front page of the FP you were bitching about.  'Economists say "YES"'
Go figure.

How about later -- "Diversify to avoid "NO" vote risk, investors told".[FP
Oct 15] These predictions *ALWAYS* come true, because they make themselves
true. If investors pull out of Canada after a NO vote because they believe
there are dire consequences, there will be dire consequences, forcing more
investors to pull out. It doesn't even matter if they believe rightly or
wrongly. If they believe it, it will happen.

If the Economic Council of Canada, all major federal parties, all provincial
governments, analysts, big business, chartered banks all say that a YES win
is vital to a better economy, a NO win bad, what do you think will happen in
the event of a NO vote? Economic stability? Dream on.

The former head of the EconCouncil said that "...next spring's federal budget
must be followed by an election. Only a strong YES can retain the stability
we need to deal with our drab economy".

These were the issues I meant to provoke discussion on with my original
article. With all thoughts of YES or NO aside, if the people who make the
monetary decisions believe a NO vote is bad, a YES good, how can it help to
be so from an economic point of view?


--
Don Bowman                (519) 744-6154     dbowman@zeus.uwaterloo.ca
Newsgroups: can.politics