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Gold/Mining/Energy : Churchill (CUQ), PE of 3! -- Ignore unavailable to you. Want to Upgrade?

To: Michael M. Cubrilo who wrote (73)	10/26/1998 4:25:00 PM
From: speculatingvalue	Read Replies (1) \| Respond to of 264

If the government didn't pay down the debt at all, but eliminated deficits, a 4% inflation rate would reduce it by half every eighteen years. 8% inflation would reduce it by half in nine years. Given that 40% of government expenditure is interest on the debt, any reduction would be extremely good news making tax cuts possible. The main danger is that if the government cuts spending too much, they could hit confidence and raise unemployment, making it hard to maintain a balanced budget. Contrary to popular belief, most of our debt is interest, not spending. A low interest environment makes it easier for governments to balance budgets. It looks like low interest rates will be in place for a while. Also, it is only debt expressed in foreign currencies that is a big problem. We could pay domestic debt by effectively "printing" money. We could repatriate the debt by offering tax incentives to Canadians to hold Canadian paper. Foreign investors perceive Canada as being resource based, but we are world leaders in software, telecommunications and biotech, specially when you consider the tiny size of our population. Forestry and mining are a shrinking proportion of the BC economy where I live. Film making and high tech are filling a lot of the void. The Economist magazine pegged the true value of the C$ at .83. They did that by comparing the cost of a basket of goods in C and the US. The reason it trades for less than that is that the currency is largely determined by highly leveraged trades on the futures market. A) These markets are easily spooked by Quebec separation and left wing governments B) They trade on momentum. They sell because there is a downward trend in place. C) Traders don't know a lot about Canada. It is considered a commodity currency, so low commodity prices push it down. Australia, Russia and Brazil have the same problem. Personally, I think floating currency rates are stupid. Exchange rates should be pegged based on import / export ratios. If Canada can maintain balanced budgets while cutting tax and interest rates and attracting talented immigrants, then good times are ahead. It is only a matter of time before commodity prices rise again. Canadian stocks have been hit much harder than American stocks in the latest sell off, making them relatively cheap. In answer to your question "how low can it go", there is no lower limit. Personally, I doubt it will go more than 25 percent below the "true" rate of .83.