Well this has a familiar sound.

[photofly]

Keep going - what does the Chinese bank do with the CDN$?

Do you think just because they're Canadian dollars they have to spend it in Canada?

Of course. The only things you can actually buy with CDN$ without converting to another currency first are things that are made in Canada. Well done.

Let's look at your other comments:
"Lend it to Canada at huge interest rates?" Hardly. The Bank of Canada is the lender of last resort for CDN$. As such, it sets the interest rate for lending in CDN$. (You'll hear Mr Carney and colleagues debating what it should be set at, every month.)


"Or exchange it for Euro's and lend it to Portugal. Or exchange it for US dollars and lend it to the United States?" For what possible reason does the Portuguese government want to hold Canadian currency? Or the US Government? Hint: The correct answer is in my first line of this post.

[photofly]

Ping is just one example. As for having the choice to buy the clubs because the are manufactured in Asia? Many consumers are unaware of the shift of manufactucting the of some products. Heck even I was unaware of the Ping clubs and I own ping clubs.

Fair point. Economic theory is based on both sides having the same knowledge. You should decide to buy the clubs knowing where they're made. But there's no economic reason to draw any distinction based on where they're made. There are political and emotional reasons, but they're not based on any rational reasoning.

You seemed to be focused on the manufacturing side of things and tend to forget that if we North Americans dont have jobs, we dont have disposable income. Not good for the big corporations now is it.

I'm not focused on manufacturing - but it was your example. The same applies in service and creative industries.

Don't assume that if I'm not paid $100/hr to make golf clubs (because a Taiwanese factory worker will do it for $10) that I won't have a job. In fact by not making golf clubs I have the opportunity to get a different job - one that's actually worth $100/hr because nobody else can do it for less. My previous job making golf clubs was only worth $10/hr , and the company that paid me $100/hr was destroying value and shrinking the economy by $90 for every hour that I worked by overpaying me.

I think your idea of value is a bit skewed too. Sorry but I would rather 300 bucks for a product that is made in the US that will last a lifetime rather than buy a similar product for 30% the price but have to purchase a new one every year or two. Most Asian manufactured/assembled products are throw away items.

Two points there: firstly, my idea of value is based on economic value. There are lots of others that are equally valid but they don't have a place in an argument on economics. Secondly, there's no a priori reason why an item made in Asia is inferior to something made in the US. If you don't like Asian golf clubs, don't buy them.

[Rockie]

Photofly my friend, you have some serious misunderstandings going on here.

Hardly. The Bank of Canada is the lender of last resort for CDN$. As such, it sets the interest rate for lending in CDN$.

The BofC sets the lending rate in Canada. If Canada were to borrow money from somewhere else like China (which they do a lot of besides other sources) then those countries, or banks or whatever outside Canada can charge whatever they like. The BofC has nothing whatsoever to say about it.

The only things you can actually buy with CDN$ without converting to another currency first are things that are made in Canada. Well done.

You can buy anything you want anywhere you want with CDN$ if someone is willing to accept it. For example my wife goes to the States occasionally and buys American goods from an American store, but pays in Canadian dollars. Also have you ever heard of currency traders? Currency itself is a commodity bought and sold all over the world.

For what possible reason does the Portuguese government want to hold Canadian currency? Or the US Government? Hint: The correct answer is in my first line of this post.

They don't necessarily, that's why they exchange it first for Euro's, or US dollars, or Mexican Peso's, or Japanese Yen...whatever. You don't even need a clue for that because I explicitly said it in the post you referenced. Then again they might want Canadian dollars as part of a currency trading strategy mentioned above.

And here you really contradict yourself without knowing it:

Ping is a US company. Every extra dollar of profit is a dollar that goes to the US shareholders, contributing to the US economy. The more profit they make, the better for the US economy.

You know that profit made by a US company goes to US shareholders which benefits the US economy. But you also say that profit made by a non-Canadian company that goes to non-Canadian shareholders somehow also benefits the Canadian economy. Does everything benefit the Canadian economy?

[photofly]

China can hold as much CDN$ as it likes, but it can't set its own interest rate for it. Why? because the Bank of Canada controls the money supply of CND$ (that's what being the Reserve Bank means.) If China asks for 5% and the BOC only wants to pay 2%, the BOC simply issues more notes instead of borrowing.

You can buy anything you want anywhere you want with CDN$ if someone is willing to accept it.

But why would they accept it? Currency isn't a good. It's only a means to to buy and sell goods - it has no intrinsic value. And currency only buys goods in the country where the currency is issued. If I want to buy Canadian exports from a Canadian company I have to go buy CDN$ first. (Have you ever done any international trade? I have.) Now trace those CDN$ back to the time they were issued by the BoC, and ask how they left the country...

And here you really contradict yourself without knowing it:
...
But you also say that profit made by a non-Canadian company that goes to non-Canadian shareholders somehow also benefits the Canadian economy. Does everything benefit the Canadian economy?

BINGO! You're finally getting it! International trade boosts the economy! It's not a zero-sum game, where one side has to lose so that the other can gain. In 2011 the global economy was worth some $70trillion. Where do you think that value came from? A secret injection of moondust?

[Rockie]

China can hold as much CDN$ as it likes, but it can't set its own interest rate for it. Why? because the Bank of Canada controls the money supply of CND$ (that's what being the Reserve Bank means.) If China asks for 5% and the BOC only wants to pay 2%, the BOC simply issues more notes instead of borrowing.

Yes it can set it's own interest rate for it because that money belongs to China now and not Canada. If Canada doesn't want to pay the interest rate China demands for it then China can lend it to someone who will. Then Canada can print more money if they want to pay their bills - and the US is actually doing that in a measure called "quantitative easing" - but they are diluting (devaluing) the currency by doing so and risking inflation.

But why would they accept it? Currency isn't a good. It's only a means to to buy and sell goods - it has no intrinsic value. And currency only buys goods in the country where the currency is issued. I

Well, my wife proves you wrong every time she goes to the states.

BINGO! You're finally getting it! International trade boosts the economy! It's not a zero-sum game, where one side has to lose so that the other can gain. In 2011 the global economy was worth some $70trillion. Where do you think that value came from? A secret injection of moondust?

You completely missed my point.

[photofly]

Well, my wife proves you wrong every time she goes to the states.

No. Because the foreign currency she spends in the US goes straight to the vendor's bank which gives them US currency in return. The vendor company is reporting results and paying its shareholders in US$, and so needs the US$. Someone has to provide them. Happily for your wife, and unhappily for your joint pocket, it's just saving her the trouble of exchanging the currency herself.

You completely missed my point.

No, I didn't miss your point.

A Chinese company buying mineral rights in Canada adds value into the Canadian economy from abroad by purchasing the mineral rights. The profits from the international sale of the coal by the Chinese company adds value into the Chinese economy. Having sold the mineral rights, the future sale of coal is of neutral value to Canada.

If the Chinese company is constrained by Canadian law from using cheap Chinese labour and forced to use expensive Canadian labour then the mineral rights are less valuable. The lump sum to buy those rights is smaller, so the Canadian economy isn't boosted by quite as much. But the Canadian economy gets the difference because the Chinese company is forced to buy expensive Canadian labour at more than the market rate.

A Canadian-owned mining company that employs cheap foreign labour adds value into the foreign economy, and also increases the value of the Canadian economy (when it sells the coal) by more than it would if it had been mined by more expensive Canadian labour.

Either way, the increased value in the foreign economy is what allows that foreign economy to purchase Canadian exports.

Interational trade - we all win.

[Rockie]

Interational trade - we all win.

This is the only thing you said that makes sense. But the international trade has to have rules and limits set into it to ensure one side doesn't have an unfair advantage over the other. One such advantage is importing temporary workers from somewhere so they can pay them less than they would have to pay the locals.

[photofly]

One such advantage is importing temporary workers from somewhere so they can pay them less than they would have to pay the locals.

The bit you're missing is that this is not an unfair advantage. The exploitation of the difference is how both sides maximize their gain from the arrangement, to both sides' benefit.

Let's put some numbers in.

A canadian values his own labour at $50 per hour. How does he know that value? It's the market value - which means there is an unlimited number of employers willing to offer him $49.99 hourly for a job, and none who'll offer him $50.01 per hour.

He decides to work in a coal mine, and produce coal that sells internationally for $100 per tonne. He mines 1 tonne per hour. Let's say there are no other costs involved.

The company that employs him pays $50 for each hour of his work, and brings in $100. The company boosts the Canadian economy by each tonne of coal sold by $50. Paying the worker $50 per hour has no economic effect on the country - because by employing him, they're preventing him from working for someone else. That's another company that's being denied the opportunity to profit by his labour. An illustration of the fact that an exchange at fair market value has no overall economic effect.

Along comes a foreign worker, who's also a miner. He's happy to mine for $10 per hour though. The mining company employs the foreign worker for $10 per hour and now brings in $90 to the canadian economy for each tonne of coal sold.

Meanwhile, the Canadian miner has been given back his labour. He goes back to the labour market, and gets a different job, at his market rate, for $50 per hour. No difference to him, but he can now go and make semiconductors or something else which also benefits the Canadian economy.

The result of employing the foreign worker is that the Canadian economy is better off by $40 per tonne of coal PLUS whatever contribution the Canadian former miner can make at his new job.

[Rockie]

The company that employs him pays $50 for each hour of his work, and brings in $100. The company boosts the Canadian economy by each tonne of coal sold by $50. Paying the worker $50 per hour has no economic effect on the country - because by employing him, they're preventing him from working for someone else.

In your example the company boosts the Canadian economy by $100 - not $50 - because all of the money stays in Canada with either the company or the employee and is presumably spent in Canada.

Along comes a foreign worker, who's also a miner. He's happy to mine for $10 per hour though. The mining company employs the foreign worker for $10 per hour and now brings in $90 to the canadian economy for each tonne of coal sold.

That's $10 dollars less than they would bring in with the Canadian employee because the foreign employee is going to spend the bulk of his money in his own country. Now we're exacerbating the problem further by having the company foreign owned which means of the $90 left the profit goes out of country as well leaving for the sake of argument $70 dollars.

Canadian owned with Canadian employee = $100 benefit to Canadian economy.
Foreign owned with import foreign labour = $70 benefit to Canadian economy.

And that also doesn't consider the cost to the Canadian economy of an unemployed Canadian worker.

Your logic is senseless.

[photofly]

In your example the company boosts the Canadian economy by $100 - not $50 - because all of the money stays in Canada with either the company or the employee and is presumably spent in Canada.

It doesn't matter which job the worker has, he still earns $50/hour, so the benefit to Canada from his own personal spending is the same whether he works for the mine or for someone else.

But it's not the mine that creates the second $50 value, it's the producers of the goods that the worker spends it on. It's inadmissible to chalk it up to the mine unless you're going to say that the producers of the food and clothes he buys don't produce any value in their goods themselves. Either way, however he still spends it, and it makes no difference.

Canadian owned with Canadian employee: benefit to Canada $50 / tonne
Canadian owned with foreign employee and Canadian doing something else: benefit to Canada $90 / tonne

(In both cases the Canadian employee still earns $50 / hour, so he gets the opportunity to contribute some or all of that $50 on further Canadian purchases.)

I didn't give you the figures if the mine is foreign-owned. Here's how that works. Let's say the mine is sold to China. It's full of Canadian workers, at the moment. The negotiation between China and Canada goes like this:

Chinese representative: we want to buy your mine.

Canadian: OK. The price is $CDN1bn. But you have to continue to use Canadian workers. You can keep the $50 per tonne the mine earns, but we want to keep the $50 / tonne that you're paying our guys, so they will continue to buy Canadian products.

Chinese: no - we want to earn more than $50 / tonne, we want to earn $90 per tonne, using cheaper foreign labour.

Canadian: OK, well, in that case, to offset the loss to our economy from you bringing in foreign labour, we want more. The price will be $1.8bn.

So option 1:
China pays $1bn for the mine, Canadian economy gets no direct contribution from the coal but continues to gain from the $50 / hr that the miners earn, in terms of buying goods from other industries

Or, option 2:
China pays $1.8bn for the mine, imports its own labour, and nothing more is spent in Canada.

There's an appropriate price in both cases. The government has to make sure that the right price is paid. But once it is, you can't quibble about foreign workers and damage to the economy any more.

And that also doesn't consider the cost to the Canadian economy of an unemployed Canadian worker.

The worker isn't unemployed. His labour is worth $50/hr, remember? that means that there's a pool of employers waiting to snap him up at $49.99 / hour. If not, then he was overpaid in the first place.

[Rockie]

Well, this is a bit like talking to a brick so I'll just say I'm happy you're not in a position to inflict your ideas on our economy and leave it at that.

Cheers

[photofly]

Well, this is a bit like talking to a brick

How do you know what talking to a brick is like?

so I'll just say I'm happy you're not in a position to inflict your ideas on our economy and leave it at that.

And how can you tell whether I'm in a position to influence the Canadian economy or not?

[NeverBlue]

Well, my wife proves you wrong every time she goes to the states.

...and there it is....contributing to the Canadian economy????...