Will A Rising Loonie Sink Martin's Ship?

What is Paul Martin thinking about as he jets around the planet? We can't know, but here's my guess: He's thinking about money.

Not his own money -- as the old joke goes, Martin's fortune is big enough to look after itself -- but the unit of money itself, the once-pitiful, now mighty Canadian dollar.

The Canadian dollar has risen by almost 20% since the spring, to about 82 cents, a level last observed in the early 1990s. No other U.S. trading partner has seen its currency appreciate so rapidly: Two of the most important, Mexico and China, have actually seen declines.

Even at 82 cents, the Canadian dollar remains well below its traditional value compared to the U.S. dollar. But who remembers that ancient history? The dollar has traded below 75 cents for more than a decade, and often closer to 60 cents.

At those low, low valuations, life has been easy for Canadian exporters: Canada enjoyed a US$62-billion trade surplus with the United States in 2004.

Life has been easy too for Canadians with assets to sell, whether they be Muskoka cottages, oil-drilling rights or shares of newly launched Canadian companies. Since 2000, Americans have invested 10 times more money in Canada than they have in China.

The flow of goods south and money north has sustained Canadian prosperity at an otherwise difficult time. The Toronto-Dominion Bank's chief economist, Don Drummond, reported last month that the real after-tax income of the average family has barely increased since 1989. The growth in the Canadian economy was powered not by hard-pressed consumers but by trade and investment.

But as the U.S. dollar buys less and less in Canada, Canadians will find it harder and harder to sell to dollar-holders. Canadian exports to the United States will dwindle; American capital investment in Canada will slow; and the Canadian economy will sputter and falter.

None of this is to argue in favour of a return to the cheap Canadian dollar. To the contrary: Canadians are now discovering what a cruel hoax the Chretien government perpetrated by trying to devalue Canada to prosperity.

But you have to understand the danger posed by a rapid and unexpected climb in the loonie to understand Prime Minister Martin's bizarre political manoeuvres over the past week.

When Martin won his minority government last summer, he must have calculated that he had a long time in which to prepare for the next election. Neither the NDP nor the BQ wanted a quick return to the polls, and it seemed reasonable to count on 24 months or even 30 months till the next vote.

Quite suddenly, that calculation looks obsolete. Martin has to fear that the Canadian economy could tip tomorrow into recession -- possibly severe and prolonged recession. He may calculate that an election in March, 2005, would serve him better than an election in March, 2006. But how to justify such an election? How to avoid looking cynical and opportunistic?

This may be the chain of thinking that led the Prime Minister to start talking about an early election on the same-sex marriage issue -- sorry, not same-sex marriage, but rather the "defence of the Charter of Rights."

The Charter has acquired real prestige and popularity in Canada. Canadians might just possibly be led to accept something they dislike, such as same-sex marriage, if it can be repackaged as a Charter right.

And, again just possibly, they might also be persuaded to re-elect an otherwise undeserving government if it could be repackaged as a Charter defender.

This plan may not be a great plan -- but it's a heck of a lot better than staying in office to be politically pummelled by a slump in the Central Canadian manufacturing economy. The Canadian Automobile Workers union notes that 100,000 Canadian manufacturing jobs have been lost since the dollar started to rise in November, 2002; the CAW also says that 17,000 manufacturing jobs were lost in the month of December, 2004 alone, and predicts that, at 85 cents, as many as 400,000 manufacturing jobs could be lost by 2007.

Canadians might just possibly forgive a government that got caught in a genuinely global or at least continent-wide downturn. But in a dollar-driven downturn, the Canadian economy would slump even as the United States boomed. And that is a contrast no Canadian prime minister can survive -- unless of course he happens to be sitting upon a safe majority with five years to go before the next election call.

Paul Martin made his recent statements on same-sex marriage, Charter rights and the next election while he was in China. Perhaps that is why his words need to be translated into plain English, like so: "I need to call an election before the economic roof falls in. Same-sex isn't much of an issue, but it sure beats 'Where did all the jobs go?' Maybe I can't save all those other jobs. But I sure intend to do everything I can think of, no matter how desperate, to save mine!"