This is what China’s commentator believe about the G7 countries

A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.

With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.

Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.

That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.

It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble.

By Lau Nai-keung (China Daily)

This is bad, not that China is itself blame free of this bubble mentality, but still…The one nice”er” aspect to this commentary is that Canada and Australia are outside the mix.

On other issues it seems that Bay Street is more divided on the ability/desire of the BoC to raise rates in July (at its next meeting).  The statement that announced the rate increase also included a bit about the global economy, and its impact on Canada.

I mentioned before that the health of the Canadian economy is a first derivative exposure to global GDP growth.  Its not so much that the world buys what Canadian companies make, rather we provide many of the building blocks (or as Dennis Gartman mentioned – things that are heavy and hurt your foot when you drop them) of international trade.  Should demand in Europe and America decelerate, then Chinese and Taiwanese manufacturers would need less of the raw materials that Canada (and Australia) producer.  Already raw material prices are dropping, with the copper king leading the way.  

 

Rumors are that China’s appetite for copper has dropped dramatically over the past few weeks – too early to say if this is a trend, but it would appear that early signals are for a Europe/America slow down that will eventually impact raw material prices – this is bound to affect Canada’s growth, and Mr. Carney’s ability to increase interest rates.

Not entirely sure what the impact on the CAD will be, right now our currency is behaving as a Petrocurrency, with a very high correlation with petrol prices... on one side a recession will lead to a reduction in consumption, on the other side US domestic supplies are constrained after the BP disaster.  Nuclear power has been sidelined in the US since the Three mile Island disaster of 1976.  Considering the importance of deep sea drilling on US production, the overall impact on oil prices is difficult to ascertain.