[LINK] "Canada’s two new solitudes"

[rfmcdonald]

In the Globe and Mail, Canadian economist Jeff Rubin writes about the consequences of a Canadian economy driven by oil--actually, it would be an Albertan economy driven by oil, including tar sands oil, while the strong Canadian dollar will hurt Canadian industries of all kinds in British Columbia and central Canada (among other regions).

The very oil reserves that will soon make Canada an energy superpower are making the loonie a petro-currency. Already around parity with the greenback, the Canadian dollar will soar to unprecedented heights against the U.S. dollar as triple-digit oil prices pull more and more daily oil production from the tar sands. And a strong dollar means one thing to hockey fans: NHL franchises leaving Dixie and the desert, and moving to Canada.

Sounds great, until you start to do the math and realize that the more oil Canada produces, and the higher the loonie goes, the less steel, machinery and even cars the rest of the economy will produce. We’ll see how Canadians come to like their economy being at the other end of Americans’ gas nozzle.

Or maybe we shouldn’t be speculating how “Canadians” will feel about the experience, since we will be thinking about it more as, say, Albertans and Ontarians, or Newfoundlanders and Quebeckers. Soaring oil prices and a muscular loonie won’t be a problem for Alberta, since the U.S. will soon have to buy most of its oil imports from Canada no matter what the exchange rate. However, it could prove to be a tad more problematic for the manufacturing sector in the industrial heartland of Ontario and Quebec.

Albertans flush with oily money will be able to spend their powerful loonies to buy whatever they like, but good luck to anyone trying to export something other than oil, particularly if it is produced by skilled workers paid in a strong Canadian dollar. Whether it’s cars or unpasteurized Quebec cheese, it’s getting more expensive in the U.S. market every time the loonie gains ground on the greenback. And Maritimers, who will soon be paying triple-digit prices for the oil they import from Venezuela, aren’t likely to be crazy about a big premium exchange rate either. When American tourists see their Visa bills from their Canadian vacations, chances are they won’t be coming back, even if our beer does taste that much better. While a premium Canadian dollar will likely bring back some long-lost NHL franchises to Winnipeg, Quebec City and maybe even Hamilton, that’s about all it will bring from the U.S.