[Recorded by Electronic Apparatus]
Tuesday, November 26, 1996
.1530 
[English]
The Chairman: Could we come to order, please.
The finance committee of the House of Commons is delighted to have with us today, from the Bank of Canada, Governor Gordon Thiessen, Mr. Tim Noël, and Ms Sheryl Kennedy.
We look forward to your comments, Governor.
Mr. Gordon G. Thiessen (Governor, Bank of Canada): Thank you, Mr. Chairman.
My colleagues and I are pleased to be invited to appear before this committee to discuss our autumn monetary policy report. We released it just about a week ago, and I must say we welcome these opportunities to meet with you to renew our discussion of monetary policy and related matters.
[Translation]
In Each Monetary Policy Report, we present the Bank's assessment of the current trend of inflation and outline the monetary policy actions that we felt were necessary to keep that trend within the Bank's target range of 1 to 3 per cent for inflation control. The reports also look at the current economic climate and its implications for inflation in the near and medium term.
[English]
If I may, I would like to remind you why we believe achieving our inflation control targets will contribute to the good performance of the Canadian economy. Low inflation provides a more stable and predictable environment for Canadians in making their economic decisions. Over time, that leads to better economic decisions and a more productive and prosperous economy.
And when the bank takes action to hold inflation inside the target range, monetary policy operates as an important stabilizer that helps to maintain a sustainable trend of growth in economic activity and in employment. For example, when economic activity is expanding at an unsustainable pace, pressing on the limits of production capacity in the economy and threatening to push the trend of inflation through the top of our target range, the bank will tighten monetary conditions to cool things off. But the bank will respond with equal concern by relaxing monetary conditions when the economy is sluggish and there is a risk that the trend of inflation will fall below the target range. While there's always some lag in the impact of monetary policy on the economy, what this approach does is provide monetary support that over time will help economic activity and employment to grow at their potential.
[Translation]
Since our previous Report in May, consumer price inflation has remained in the lower half of the Bank of Canada's inflation- control target range of 1 to 3 per cent. Over this period, there was continued downward pressure on the trend of inflation coming from the margin of unused capacity in our economy. In light of this, the Bank of Canada took further action to ease monetary conditions. Since May, we have reduced the Bank Rate by one-quarter of a percentage point on seven occasions. The four most recent reductions were designed to keep monetary conditions from tightening by ratifying declines in short-term market interest rates that had occurred in response to a rising Canadian dollar.
[English]
Financial markets have reacted positively to the cuts in the bank rate, recognizing that they were consistent with Canada's solid economic fundamentals - an improving fiscal situation, a dramatic move to surplus in our balance of international payments, and low inflation. These factors have firmly underpinned the value of the Canadian dollar, and most Canadians interest rates have fallen below those in the United States. Only very long-term interest rates in Canada remain higher than comparable U.S. rates, but even in that case differentials are now below historical averages.
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Looking ahead, Canada's economic prospects have improved since we last met six months ago. The external economic environment remains positive. In particular, the U.S. economy looks to be in a balanced situation, which increases the likelihood of sustained economic expansion in that country.
My colleagues didn't like my using the term ``a balanced situation''. What I really mean by that is that there are no strong pressures in the United States towards expansion or slowdown, no strong pressures towards inflation or recession that need to be countered at this moment.
At home, in response to the cumulative monetary ease now in place, recent indicators are pointing to a pick-up in the pace of economic activity.
[Translation]
However, some people have expressed concerns that consumer demand will be restrained by a high ratio of debt to disposable income in the household sector. While debt levels are high, low interest rates are bringing down the cost of carrying this debt and are having a positive impact on the household sector's financial position. As well, we know that some of the debt has been used to acquire financial assets. And when asset values are included in the equation, the overall net worth of households has in fact been improving.
[English]
To conclude, Mr. Chairman, we expect a strengthening in the pace of economic expansion. The major uncertainty for monetary policy continues to be just how rapidly the economy will rebound, and whether or not we will have further downward pressure on inflation over the medium term.
This means we are going to have to continue to monitor the economic situation closely in order to judge how much momentum there is in the economy and whether the level of monetary conditions is appropriate. Certainly there is plenty of room in the economy for the economy to expand without generating inflation pressures.
That's all I have to say by way of introduction, Mr. Chairman.
The Chairman: Thank you very much, Governor.
[Translation]
We are going to begin our question period with you, Mr. Bélisle.
Mr. Bélisle (La Prairie): Mr. Thiessen, you told us that you are aiming at an inflation target range of 1% to 3%. Since there are some sectors where the inflation rate will always be higher than 3%, which is beyond that range, should we assume that there must be some other sectors which stand below that range, in other words that are deflating? There has to be deflating sectors to allow the average to set within the 1% to 3% range; Am I correct in saying that?
Mr. Thiessen: Yes, when we have a 2% rate of inflation, for instance, some prices are increasing while others are decreasing. When we talk of inflation, it means that prices are decreasing on the average and that the overall trend of prices is downward, not only the prices in a few sectors. We cannot say that there is inflation just because a few prices are rising.
Mr. Bélisle: I understand. In the first paragraph on page 3 of your brief, you say:
To conclude, Mr. Chairman, we expect a strengthening in the pace of economic expansion. The major uncertainty for monetary policy continues to be just how rapidly the economy will rebound, and whether or not we will have further downward pressure on inflation over the medium term.
Should we feel concerned about that? Should we fear that additional downward pressures might be put on inflation? If it were the case, could we talk of deflation then?
Mr. Thiessen: No, I don't think so.
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If a downward trend brings the inflation rate very close to the lower limit of our target range, that is close to 1%, we still cannot talk of deflation. Deflation is a much more dramatic situation which occurs when almost all prices are rapidly coming down in the overall economy and when at the same time there is a downward trend in prices. It is quite different from what we see now in Canada, even though downward pressures are still exerted on inflation.
Mr. Bélisle: So, you remain optimistic in spite of everything. According to what you are saying, all factors are coming together now so that we can expect sustained economic growth in Canada in the years to come.
Mr. Thiessen: Exactly.
Mr. Bélisle: That will be all, Mr. Chairman.
The Chairman: Thank you very much, Mr. Bélisle.
[English]
Mr. Grubel, since the governor has been following your suggested monetary policy for the last three years, I assume you have no questions. Maybe I could therefore go to Ms Whelan.
Mr. Grubel (Capilano - Howe Sound): This man has missed his calling. If he loses the election, he will become a comedian. I've observed him now for many years and I think he has great talent.
The Chairman: Mr. Grubel, I am very fond of you as well. Thank you very much.
Mr. Grubel: Looking into the future, it's often interesting and useful to look at what happened in the past. I was thinking about the period since the economic recovery started in the United States. Nothing much has really happened with respect to the size of the American deficit. The inflation rate hasn't come down any and, certainly on the North American capital market or global capital market, our improvement in the deficit is really just a drop in the bucket.
So to what do you attribute the global, and especially the U.S., decrease in the interest rate - which we are sort of piggybacking on, if you want to be honest?
Mr. Thiessen: I think you're putting words in my mouth, Mr. Grubel.
The Chairman: Watch him.
Mr. Thiessen: I really do believe there is an improvement in the U.S. fiscal situation. It's not as dramatic as in some other places, but when you do your forecast by looking further out, you really do see a situation in which it does look as if that U.S. fiscal situation is going to improve. There still is the issue of the longer-term pension and medical care requirements further out, but if you look at the period over the next five years or so, it doesn't look bad at all for their continued good growth in the economy.
Of course, there is a virtuous circle when interest rates go down. All those governments that have accumulated debt benefit. But even more generally, I think there is a view in financial markets that the fiscal problem - if I may call it that - is going to be resolved, that everyone is committed to getting their fiscal situation under control. And that is also true in Europe with the Maastricht criteria. So I think what you see in financial markets are people saying that all the demand on world savings that came from governments is going to diminish over the period ahead, and I believe that's what financial markets are reflecting.
Mr. Tim Noël (Deputy Governor, Bank of Canada): Just to add something with respect to Canada, there's no question that there has been substantial improvement, even versus the U.S. Our spreads right along the yield curve have come down quite dramatically since the beginning of the year. We're 250 basis points below the U.S. in the 90-day area, and we're under the U.S. in terms of 10-year rates. That is due to a combination of factors in Canada, but it includes the fiscal side, which has made a lot of improvement over recent times.
Mr. Grubel: Until I was diverted by Mr. Peterson's cute remarks, I was going to congratulate the Bank of Canada for its excellent management and for sticking with the targets. I was also going to congratulate the Minister of Finance for having helped, with his determination to bring this about. I think we're in really good shape, although it could have all come about a little bit earlier if the government had followed the Reform Party recommendations.
.1545
We also know, however, that the inflation rates are different between Canada and the United States, and while the true theoretical concept of the real rate is the expected rate of inflation relative to the interest rates, we don't have any really serious figures on expectations. So if we take the current rate as a proxy, what is the difference in real interest rates between Canada and the United States at the short end?
Mr. Thiessen: If you look at the short end, there is a difference between short-term commercial paper rates to the order of 250 basis points. I think a good fix on the difference in inflation rates is about 150 basis points. So that leaves calculated real short-term interest rates at about a percentage point lower here.
Mr. Grubel: Our inflation rate is only -
Mr. Thiessen: It's 150 basis points lower than the American rate.
Mr. Grubel: At the moment?
Mr. Thiessen: Yes. Their core rate is running below 3%, while ours is running just under 1.5%
Mr. Grubel: Thank you.
I just would like to ask one last question. The rate at which the monetary policy is translated into economic activity depends on the speed with which the banks pass on the lower interest rates to the consumers. We always know there is a lag because of the way in which they have adjusted their portfolios and so on. I wonder what the indication is in the current period of interest rate reductions. Are the banks behaving in the way in which they behaved in the past in terms of the speed at which they are passing on the reductions to consumers?
Mr. Thiessen: I think it's difficult to see anything very differently than in the past. A lot depends on the particular interest rates. We certainly find that the banks' prime lending rates tend to come down almost immediately after we lower our bank rate. Of course, once you get to mortgage rates, those tend to be far more dependent on what happens to government bond yields.
Government bond yields will often follow a move by the Bank of Canada, with some lag. Or they may respond to international developments. Mortgage rates therefore tend to be linked much more closely to those rates. Consumer credit rates tend to be related much more closely to short-term rates, so consumer credit rates on car loans and things like that have, by and large, come down as you might have expected.
Mr. Grubel: On the other hand, a global summary of this effect would be bank profits. I would like to throw this out for you to comment on: if the rate at which the banks can borrow goes down more quickly, and if they take a longer time to pass on the lower interest rates to the people who borrow from them, we would expect to see a bulge in profits. In terms of the record profits that we see, would you be prepared to comment that they are an indication of the fact that the banks may have not been as quick to pass on these lower interest rates to their consumers as they have been in the past, when such reductions did not produce such record profits? Or am I off-base on this questions?
Mr. Thiessen: I can't say that I'm an expert at explaining bank profits, but it's my perception that much more of the recent increase in profits has to do with service fees as opposed to the spreads between deposit rates and lending rates. But I have to admit to you that I haven't done a careful analysis of that, so I'm really not in a position to say to you whether the spreads between borrowing and lending rates are particularly unusual at this time. It's not something I've looked at.
Mr. Grubel: Governor, for those of us who have to go into an election - or my colleagues who have to go into an election - maybe your very capable research staff could provide us with some information that would also be helpful to the banks. When we are being questioned on the campaign trail along the lines of, ``These damn banks...!'' - you know, I don't want to join that. I would like to have evidence that they in fact behaved in the rate at which they passed on the lower interest rates to the public; that they haven't changed their behaviour; that it is in fact due to other factors, whatever they might be. I think it would be very much in everybody's interest, including the bank's, to make that information available. Who would be better placed to do so than your capable research staff?
.1550
Mr. Thiessen: We can certainly get that information, Mr. Grubel.
The Chairman: Thank you very much, Mr. Grubel.
Ms Whelan, please.
Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman. I have one brief question.
In your opening statement you make a comment about how ``monetary policy operates as an important stabilizer that helps to maintain a sustainable trend of growth in economic activity and employment''. Could you talk a bit about how the monetary policy is affecting employment? What are your predictions for that?
Mr. Thiessen: It's always difficult to make predictions about the economy in the short run, whether they're predictions about economic activity or about employment.
As I said, because the economic activity has been relatively weak and there has therefore been downward pressure on the inflation rate, our policy calls for the bank to ease monetary conditions to provide more stimulus to the economy. That's indeed what we've been doing over the course of the past year.
But as I also said, there does tend to be a rather long lag in the impact of monetary policy, a lag of a year to a year and a half in terms of the impact on the economy, and perhaps another six months on top of that in terms of its impact on inflation. So the effects of the decline in interest rates over the last year are really only going to be felt during the course of 1997 and beyond. It is during that period that we expect to see a pick-up in economic activity and an improvement in employment.
Just how rapidly the improvement in employment is going to take place is very difficult to say. As long as there's quite a lot of uncertainty about the future, you will find that employers are hesitant to employ new people very rapidly. They're more inclined to increase their use of overtime and to hire people part-time. How quickly the increase in economic activity gets translated into more full-time jobs is difficult to say, but I certainly think we're going to see the start of it next year.
Ms Whelan: Thank you very much.
[Translation]
The Chairman: Mr. Duhamel, please.
Mr. Duhamel (St. Boniface): Thank you, Mr. Chairman.
[English]
I have two questions, Mr. Thiessen.
First, I want to understand this statement near the bottom of the first page of your comments today. I quote: ``...the Bank will tighten monetary conditions to cool things off. But the Bank will respond with equal concern, by relaxing monetary conditions...''
I understand those activities to be the increasing or decreasing of interest rates. Is that correct, or are there other measures as well?
Mr. Thiessen: No, that is a measure, but that measure has two kinds of effects. It affects other interest rates in our economy. When we move the bank rate it affects other interest rates in the economy, but it also affects the value of the Canadian dollar, so that when we talk about monetary conditions, we're talking about the combined effect of interest rates and movements in the Canadian dollar.
Mr. Duhamel: Thank you. There is another question I want to raise. I'm told that seniors, primarily as a result of low inflation rates, I guess, and depending upon where they get their remuneration from in order to live, can in fact be - ``victims'' is perhaps a bit strong - made to suffer from such measures.
First, would you comment on that particular point and, second, indicate what might be done, assuming the assertion is a correct one? Are there things that government might do to counteract that? Third, are there other groups besides seniors that are in fact - again, I'm looking for the right word - perhaps penalized somewhat as a result?
Mr. Thiessen: First, I think it's very important to remember that when interest rates are as low as they are now it's usually because inflation is also low. When inflation is low, it eliminates some of the arbitrary declines in wealth and declines in income that occur for people on fixed incomes when inflation is high. The people who suffer most from inflation tend to be seniors, because a disproportionate number of them live on fixed incomes. One of the first things to remember is that low interest rates only come from low inflation, and that is helpful to people on fixed incomes.
.1555
There's another thing low inflation does for us. It stops some of those big swings in interest rates that we've seen over the course of the last twenty years, big movements up and big movements down. And for people planning their retirement or for people trying to organize their retirement income, those swings are extraordinarily difficult. It is far easier to make plans either for your retirement or to manage your retirement when there's more stability. We believe that low inflation brings you that degree of stability and therefore is going to make it easier for most retired people to plan their retirement.
It is also true that while I believe most Canadians fully understood the link between inflation and interest rates when interest rates were high and inflation was high, I don't know if they always understood what the tax system did to them in those circumstances.
If you have a 10% interest rate on an investment, but the inflation rate is 7%...and let's assume that you have a 40% marginal tax rate. What you get after tax is six percentage points on that 10% rate of return. But if you have a 7% inflation rate, you're a net loser. You have not even managed to maintain your capital. I think a lot of people didn't realize what was happening to them throughout that period. With low inflation, that kind of major disadvantage goes away.
Finally, I would say that in general it is in everybody's interest that the Canadian economy perform well. Right now we need relatively low interest rates to help that economy get going, and I think it's probably in everyone's interest that it does get going, including that of seniors.
Mr. Duhamel: Thank you. Merci.
The Chairman: Thank you, Mr. Duhamel. Mr. Pillitteri is next, please.
Mr. Pillitteri (Niagara Falls): Thank you, Mr. Chairman.
It's nice to see you again, Governor. Every time you have appeared, the economic situation keeps improving. You give us nothing but good reports about the economy and the future of the Bank of Canada and what it's doing for its people.
I was most impressed by the question asked by Mr. Grubel. The response he got surprised even Mr. Grubel: we are doing much better in the expectations for interest than they are in the United States. It even surprised him. I'm not an economist, but I am certainly very well pleased that we're doing much better than even he had anticipated.
As the banks have been responding to the lower interest rates, they have been dropping their rates. Would you make the same comments if they'd done the same thing with respect to credit cards? And also, some other interest groups... Have the banks responded as fast as they should have or do you think something should be done there?
Mr. Thiessen: I must say that I find it very difficult to tell financial institutions what their interest rates should be on any particular instrument, because of course they do have to make calculations about what kinds of risks are involved in that instrument and what kinds of administrative costs there are. I really hesitate to say that I think those rates are too high or they're too low or anything else.
I think it's terribly important to remember just how significant or not significant consumer credit card lending is. The number I have in my mind is that the amount of outstanding consumer credit in Canada, and that includes both residential mortgage loans and consumer credit loans, is of the order of $480 billion. The amount of credit card credit outstanding is of the order of $18 billion. A portion of that - maybe 20% - gets paid off every month and therefore earns no interest whatsoever. So what you're left with out of all of that is really a rather small proportion of total consumer credit, maybe of the order of 3%.
Perhaps there is a problem. I must confess to you that I don't feel able to make a judgment about that, but in terms of the functioning of the economy, in terms of ensuring that low interest rates get passed on to the economy, this is not the most important thing.
The Chairman: Thank you very much, Mr. Pillitteri. Ms Chamberlain, please.
.1600
Mrs. Chamberlain (Guelph - Wellington): Governor, welcome.
I too am happy it's good news. You talked a little about the fact that this government is working on the deficit reduction and we're meeting the targets, and that's good news for the economy. You talked about the low interest rates, which obviously are really, really good news for the economy and people and spending.
What I want to ask you for is your opinion on something else, and that is the fact that asMr. Grubel said, we are going into an election. It's very important to respond to the needs of people, and obviously to the needs of the country, to make us competitive and viable. Because the low interest rates are the way they are at the moment... I'm sure you've heard Mr. Martin talk about the fact that it is his belief that this is a real plus for the average Canadian. The fact is that low interest rates will actually put much more money into the pockets of Canadians than a tax cut ever would.
I would like you to comment on your perspective on that, please.
Mr. Thiessen: There's no doubt low interest rates do put a lot of money in the pockets of people who have debt right now. The kind of interest rate declines we're looking at for people who took on a mortage five years ago, for example, is of the order of three percentage points if you had a five-year mortgage and you now renew it for five years. If you're talking about $100,000, that's $3,000 a year in additional funds. It's a little less than that for a one-year mortgage. Of course the larger the mortgage the bigger the benefit.
I find it very difficult to comment on issues of tax cuts or not. I really do believe the issues of how much governments spend and therefore how much they tax are essentially political decisions that parliaments, governments, and electors must make, and I really don't think it's appropriate for the central bank to comment on those matters. I'm quite happy, as a central banker, non-elected, to comment on the financial situation of our economy. When deficits were large and debt was accumulating, I really did think it was the role of the central bank to comment on that. But when it comes to issues of what the tax level should be, what the expenditure level should be, I don't think that's for me or my colleagues to comment on.
Mr. Grubel: I could make a comment.
Some hon. members: Oh, oh!
Mr. Grubel: I think we should realize, before we go overboard on congratulating ourselves on the low interest rates, that historically low interest rates are associated with a poorly performing economy. That's why the interest rates have to be so low. Secondly, it is quite clear that consumer spending is influenced by what you have suggested, though it is matched to a considerable degree by the reduced income of the pensioners Mr. Duhamel was talking about.
What really counts is the debt relative to disposable income, as the governor mentioned. How do you increase and make this more beneficial? The debt is fixed. You can't change that in the short term. The only way really to do it is to increase the disposable income. And how do you increase disposable income? You cut taxes.
All this instead of what has happened over the last four years, during which every time income rose and inflation increased income the increased tax revenue, cumulatively $25 billion per year, was taken away from those families and it reduced the disposable income. That's why the ratio of debt to disposable income has remained constant and spending has not taken place.
So much for economics 101, in a way in which the governor could not say.
The Chairman: I'm just delighted that you have put words into his mouth, Mr. Grubel.
Mr. Thiessen: But those are not words I would like in my mouth, Mr. Chairman, because I'm not sure I fully agree with them.
I don't want to comment on the benefits of tax cuts or otherwise, but I do believe it's the case that low interest rates, which do reflect low inflation as well as a relatively weak economy, have the effect of lowering the debt service costs of existing debtors, and that tends to encourage an expansion in the economy.
.1605
It is also true that there are a lot of Canadians who are not heavily indebted. There are a lot of young people starting out their careers and looking to buy houses, cars and furnishings, and they are not the people who accumulated large quantities of debt during the 1980s. So I believe there is room for some people to take on more debt and there's also room for some existing debt holders to spend more as their debt service costs go down. So I believe we can and will get an expansion in this economy with the current low interest rates.
Mrs. Chamberlain: Thank you for the clarification, Governor. I appreciate that.
Mr. Pillitteri: I definitely wanted to respond to Mr. Grubel about the tax cuts and, of course, their policy that having tax dollars in the consumers' hands is better than having them in the hands of the government. But let's not forget - those of us who are old enough to remember - Reaganomics. Yes, we do remember what Mr. Reagan did. He put more money in the hands of the consumer but increased the debt. Today they're paying for that debt, and of course they forgot about their social safety net, which we have not forgotten in Canada.
Mrs. Chamberlain: Here, here!
The Chairman: That was far higher than economics 101.
Mrs. Chamberlain: That was good. I'm glad I asked the question.
Mr. Benoit (Vegreville): In the case of both Kennedy and Reagan, their policy of lowering taxes did work. But they started spending the increased revenue that came from the tax cut like drunken sailors, and that's what caused the problem, not the tax cut in first place.
In your conclusion you said you expect a strengthening in the pace of economic expansion, and the major uncertainty for monetary policy continues to be just how rapidly the economy will rebound. Along with that, a little earlier you said that consumer demand will be restrained by the high ratio of debt to disposable income. Of course, about 60% of our country's economy is driven by consumer spending.
There's a lack of confidence in the economy both on the part of the consumer and on the part of business, and this has been demonstrated in several polls. All that together causes quite a bit of uncertainty about how soon, if ever, this expansion will come.
Let's say there's a downturn in the American economy in the fairly near future that isn't really anticipated now. That, of course, would have a major impact on the Canadian economy probably more quickly than the other way around - positive pressure from the American economy. Considering all those things, just how confident are you that there will be a major strengthening in the pace of economic expansion in Canada over the next year or two?
Mr. Thiessen: It's certainly important, Mr. Benoit, to be modest about one's ability to make short-term forecasts. There's no question that short-term economic forecasts have a wide margin of error attached to them.
But I must say that when you're looking at trends in the economy, it's very difficult sometimes to know just how quickly that trend is going to take hold and have its effects. But I think trends are far more reliable here. What we have is a situation where interest rates have come down, and there is hugely more confidence among savers and investors - both foreigners and Canadians - about the future of the Canadian economy.
I believe it is only a matter of time before that has an effect. When you take into account that we also have a highly competitive export sector here that has been moving our economy along by itself, it will not take a great deal of additional domestic spending to get the economy expanding at a pretty good pace.
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Mr. Benoit: That leads me to my next question. We have the dollar increasing, which is going to have a negative impact on exports. Our economy has been driven by exports, as you say. If exports continue to decline, even at the pace that they have in some sectors, can we still expect this economic expansion that you're talking about?
Mr. Thiessen: I don't think those exports are quite as sensitive to the exchange rate as you're suggesting. Indeed, a lot of people, when they're making their plans in the export business, have been targeting on a higher value of the Canadian dollar than the one we have. So I don't think there are a lot of those exports right at the margin now, where a slight uptick in the currency suddenly makes it unprofitable for them to export.
It's also important to remember that to the extent that the appreciation of the Canadian dollar reflects that 1.5% difference in inflation between Canada and the U.S., that's not going to affect the ability of exporters to export. It just reflects the fact that prices in Canada are rising much more slowly than those in the United States. So I don't think this export industry is on the verge of decline if there is a slight uptick in the Canadian dollar.
The thing I've taken a lot of comfort from is that I think this export increase has been far more strongly based than some of the export booms we had in the past. It seems to reflect a far greater attention among exporters to controlling their costs, working to increase their productivity, and therefore as individual businesses their international competitiveness. I think it's much more firmly based than that.
The Chairman: Thank you, Mr. Benoit.
[Translation]
Mr. Bélisle, please.
Mr. Bélisle: Mr. Thiessen, would you go so far as saying that the ongoing effects of the monetary policy could bring sustained economic growth? Is that policy as soundly based as the one we had in 1982 and 1983, which brought us economic expansion for six or seven years, between 1982 and 1989, all things being equal? It may be difficult to make forecasts about the future or to look into one's crystal ball, but do you think that the foundation on which lies the present pickup of our economy is as sound and strong as the one that led to the economic expansion we experienced during seven years, in the eighties.
Mr. Thiessen: I think so. I believe that our economic base is sounder and stronger now than what it was twenty years ago. We have to go back to the nineteen sixties to find an economic base as sound as the one we have now. As you said, it is always difficult to make economic forecasts, but I believe that the future is very, very promising.
Mr. Bélisle: In reading your remarks and listening to your opening statement, one gets the impression that the effects of the monetary policy are highly important to establish the momentum of the economic expansion. Can we go as far as saying that economic growth is ultimately much more linked to the effects of short- and medium-term monetary policy than to government short- and medium- term policies?
Mr. Thiessen: Both are important. Of course, in order for us to bring interest rates as low as they are now, we needed that an fiscal policy be put in place to bring down the deficit. That was absolutely crucial.
Ms Sheryl Kennedy (Deputy Governor, Bank of Canada): We might add to those factors all the actions which were taken by businesses and the overall private sector. You talked about an improvement of our exporters' competitiveness.
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Any actions coming from the economic stakeholders, such as consumers, come into play. Thus, we have the government budgetary, fiscal and structural policies, the monetary policy and the initiatives of all Canadians. When those three elements are brought to work together, it provides a base as sound and strong as the one we can see now.
Mr. Bélisle: That forms a whole whose parts are all interconnected. I see. Thank you.
[English]
The Chairman: Mrs. Brushett, please.
Mrs. Brushett (Cumberland - Colchester): Welcome. It's good to have you here today.
I missed the opening and I apologize; I had a speech in the House. But you indicated in your remarks that you have reduced the lending rate seven times by one-quarter of a percentage point since May. There are many people in the public who think you should have done it much earlier because we were in your range of 1% to 3% inflation for a very long period of time. How did you decide your timing? At what point did you decide that we had been there long enough and could ease on the interest rate?
Having considered that, people are apprehensive as well that once the domestic economy starts to expand - and we certainly hope it will - as soon as we start edging a bit, you'll tighten the interest rates again, you'll worry about inflation more than you should, and you will then let the interest rates rise and slow the growth again.
My question comes back to timing. If inflation has stayed there for a year or a year and a half - I've lost track of how long we've been there - how do you decide at what point you start easing up? Then when do you starting tightening up?
Mr. Thiessen: We in fact started much earlier than that. We mentioned the move since last May because that was when we were last here talking to you. So we thought the period we should report on was the period since last we appeared before this committee. But the declines in interest rates started in the spring of 1995.
Initially, those interest rate decreases were reversing some interest rate increases we'd had early in 1995, right after the Mexican currency crisis and through that period when there was a lot of uncertainty in financial markets about the fiscal situation in Canada, both the federal government and the provinces. Much of that run-up in interest rates got reversed during the middle part of 1995, but the reductions in interest rates, the ones that I think really matter, essentially started about a year ago. We have had one year of declines.
Mrs. Brushett: They accelerated, did they not, Governor? You really accelerated reducing interest rates in the last five or six months.
Mr. Thiessen: No, basically since the end of October we started -
Mr. Noël: We started bringing them down. Short-term interest rates have come down since May 1995 by 500 basis points, 20 declines of 25 basis points each. So 13 of those took place in 1995 and the other 7 have taken place so far this year.
Mrs. Brushett: How far will you let inflation go and let our economy expand before you tighten up?
Mr. Thiessen: That's what those targets are all about. The target says we're going to hold the inflation rate between 1% and 3%. There may be times when there will be a blip above those targets or a blip below them, but our objective is to keep the underlying trend in inflation inside that range. We really do believe that is going to make the economy work better.
If it looked as if there was a chance that inflation was going to get away on us, if we were not to react, then we could get ourselves into those terrible boom and bust situations we were in before, and that doesn't do anybody any good.
We think the economy has a lot of room to expand. In our report here we say there's quite a margin of excess capacity in the economy and therefore quite a lot of room for the economy to expand. But if the economy reaches not only a rate of expansion but a level of activity that pushes against the ceiling of our capacity to produce, that's when you generate inflation. If you don't slow things down then, it's not going to do you any good. You're not going to prolong the expansion.
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Our desire is to prolong the expansion by not letting it get inflationary. But if there are signs that it's getting inflationary, you are going to see us tightening. We think it is a good thing for the Canadian economy if we do that, because if we are successful, we are far more likely to have steady, prolonged growth over time. That's what we're aiming for.
Mrs. Brushett: How long do you think we could maintain this steady long growth? I talked to some of the brokers today and they are saying anything in the market is moving upwards just because we're in an upward movement trend. Even if it's not a good stock, it's getting carried along with the positive flow.
The Chairman: It'll last as long as there's a Liberal government in Ottawa, Dianne!
Mrs. Brushett: So how long do you think...? I agree that the stability to be able to project and plan and forecast and do all those proper business manoeuvres is so essential.
Mr. Thiessen: It's really interesting when you look at our experience and the American experience after the Second World War. Every single recession was followed by a burst of inflation, a situation in which a lot of debt got accumulated, in which there was a lot of speculation in assets, particularly in real estate, driving up the prices. Every single recession was preceded by that kind of event.
I don't want to suggest to you that we're going to eliminate all recessions, but they should be an awful lot more shallow in the future if we are successful in keeping that inflation rate low.
Mrs. Brushett: You also eliminate that pre-recession curve up - peaks and valleys.
Mr. Thiessen: Exactly.
Mrs. Brushett: Thank you.
The Chairman: Thanks, Mrs. Brushett. Mr. Grubel.
Mr. Grubel: I would like to turn to another scenario. Let's assume our economy does really well. Since we are a small country, we're likely to attract lots of capital that wants to participate in this. As this capital flows in, the demand for Canadian dollars goes up; the price goes up.
My first question is: do you have a target of how far you will want to let it go?
Second, if you don't let it go completely, then you will have to buy some of those foreign currencies that are being offered in the market, and in return for that you will have to increase the liquidity of the economy. That, in turn, means that the money supply will rise.
So my second question is: in your making of monetary policy, do you just watch the interest rates or do you also keep track of what happens to the monetary aggregates? How do you decide how to trade off between the monetary aggregates and the interest rates?
Mr. Thiessen: We watch all of them, of course. We don't have any target for the currency. There's no level of currency where we say that's right, or that's too much, or that's too little. But we do use this notion of monetary conditions where we are constantly translating the movements in the currency into effects on aggregate demand in the economy. So if the currency is rising and that will have the effect of restraining aggregate demand, we're taking that into account. If we do not think there's a cause for restraining aggregate demand in the economy, you will see us lowering interest rates so that we get the combination of interest rates and exchange rates, in terms of their effect on aggregate demand, that looks to us to be appropriate to keep inflation inside its target range.
Mr. Grubel: But I remember the discussions in the 1970s that in pursuing those goals by yourself, you might find yourself with an undesirable increase in the money supply, which historical studies show end up resulting in inflation in the future without your being able to say, as you said a little while ago, that this translates itself into aggregate demand, only with a lag.
So my question is: are you also making sure the money supply is not increasing excessively in the process of pursuing those other objectives?
Mr. Thiessen: I think your question implies that we are engaged in more exchange market intervention than we typically do.
When we do engage in exchange market intervention, it tends to be to ensure that the market doesn't get too unruly as opposed to standing against an upward pressure on the dollar by providing all the demand for Canadian dollars that there is. I think that's a kind of fixed exchange rate tactic. We're not on a fixed exchange rate. We don't do that.
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Mr. Grubel: I still think one of great risks for the next few years would be that we do so well that having balanced our budget, and starting to run a surplus and all that, we suffer the same problems that New Zealand and several other countries suffered - I forget right now which ones - and then providing those pressures. I hope we won't have to suffer that, even though in some ways it would be a rewarding pay-off for having been so disciplined on the fiscal and monetary side.
Mr. Thiessen: Mr. Grubel, I think many of those were cases where there were fixed exchange rates. You do get a lot of speculative inflow if people think your fixed exchange rate is not one that you can maintain.
When there's a strong sense that you have a floating exchange rate and the risks go both ways, I think you discourage a lot of that speculative flow. So if we are constantly looking to see what is the impact on a rising Canadian dollar in your example on the economy and we're not intervening heavily in there to try to stop it through intervention, I think it works and I think we avoid a lot of the problems from the past.
Mr. Grubel: I understand New Zealand definitely has this problem. I talked to a minister who said that if they had to do it all over again, they would first get the economy going while keeping a clamp on the foreign capital inflow, on the foreign capital market, and on the exchange rate, rather than letting the exchange rate go. The capital moved in. It fed on itself. It appreciated so much that their manufacturing industries were under terrific pressure all at the same time as they were making the internal adjustments, and this may be one problem.
Since we're a small country and we have a separate currency, we are open to the possibility that once there is an increase in the value of the dollar, money will be coming in. All I can see is that we watch out that it doesn't take off and put us into serious trouble with both the exchange rate and the accumulation of the money supply that is implicit if you don't let the exchange rate go up.
Thank you, Mr. Chairman. I wanted to see whether he's watching the money supply, how much of a monetarist he is.
Mr. Thiessen: Actually, you wanted to see whether I passed my economics 101 or not.
The Chairman: Mr. Grubel, was your concern more with M1, M2 or M3?
Mr. Grubel: Well, I was hoping the Governor would get into this, but he's obviously not in the mood.
The Chairman: Okay.
Bernie Collins, welcome to the finance committee, and thank you for being with us.
Mr. Collins (Souris - Moose Mountain): Thank you very much, Mr. Chairman.
Let me assure you that from my reading of your presentation you pass with full marks, and we're pleased. I think you've provided this government and certainly this country with what I like to call controlled optimism, because I think we feed frenzies from time to time and we surge forward and then we have to pull back.
What I'm interested in knowing is what you see as the economic indicators that we can take a look at. There is that lag time and people in small business and people throughout, and the guy looking for a job. How do we say there's one of those indicators we're going to start targeting? Could you identify some?
Mr. Thiessen: I can, although there are not a nice few indicators of which you can say, just watch these two things and you'll know what's going on. Obviously, as we were saying earlier, the ongoing success of exports does matter. So you don't want to be particularly captured by any wiggle in those monthly trade numbers from month to month as they come through, but looking at those trends is important.
The trend of exports is still very good. Interestingly enough, in the last couple of months imports have been a lot stronger. What does that say to you? That says there's a little more action in the Canadian economy. Some of those imports are on machinery and equipment. That's telling you that a lot of businesses are investing in new machinery and equipment because they are anxious to make sure they're productive and competitive, which is another good sign.
The other area that is important to the pick-up is the housing market and seeing that improve. We are starting to see some of that, particularly in the sale of existing houses. There are no big rises in prices anywhere, but I don't think you really expect it. What you really want to see is more turnover and that in turn eventually being reflected both in the building of new houses and the renovation of existing houses. We're starting to see some signs there.
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Another area we watch is the interest-sensitive aspects of consumer spending. That means particularly on things such as appliances and furnishings. There again, we see signs of pick-up. So that tells you, yes, there are people buying houses and they are buying furniture and appliances to go in those houses. Those are the kinds of interest-sensitive areas it's important to see some progress on.
The other thing a number of you have mentioned is important is to see an ongoing increase in employment. It's certainly true that public sector employment is shrinking, but private sector employment, even in a year when the economy has not been growing all that strongly, has not been all that terrible. We are talking about an increase of the order of 199,000 net new jobs in the private sector so far since the beginning of the year. Those are important signs, I think - the kinds of sign that do make you feel confident that 1997 is going to be a better year.
Mr. Collins: I certainly know you take a look at it, but do you watch the gap between wages and prices? Is that a factor you monitor along the way as well?
Mr. Thiessen: Yes, we do. In fact, if you look at our monetary policy report, which I hope you all have had a chance to look at -
The Chairman: That's for sure.
Mr. Thiessen: - there is in fact a chart... Where is the chart...?
The Chairman: It's on page 36.
Mr. Thiessen: It's on page 16, actually, where you will see there is something called ``producer real wages''. What we're doing there is taking wages and deflating them by the prices producers get. That's something like the cost of wages to the producer relative to the kinds of prices he or she can receive. We compare that with labour productivity and we ask, now, what does that imply for pressures in the labour market?
So, yes, we do monitor it closely.
Mr. Collins: I've sat in on a couple of committees now, and one thing that really strikes me as being a problem is this. We have people in the mining industry and we want to encourage mining. So they set a proposal together and we say, all right, we'll review your proposal. When the proposal shows up, then we say, but we would like you to do three more things. While we're creating all kinds of hoops they have to go through, our counterparts in the United States or elsewhere are getting on with the business of doing business.
I wonder how you can help us so we get away from this layering of bureaucracy here. Rather than bringing it together, we get to be like a bloody octopus. Everybody has an arm on the machine and nobody has a head on it, while somebody, to keep his job going, is figuring out a new system for us to do something else. Surely to God it must be affecting our economy and where we're going. How do you in the banking fraternity help us? I get people coming in here frustrated day after day, saying, if we could only get over this we might be able to proceed with business.
Mr. Thiessen: I don't know there's anything we at the Bank of Canada can do about any of that. I must say I do hear complaints of that sort as well. I don't think I'm a very good judge about how crucial those are. A lot of things are important. Safety concerns are important. Environmental concerns are important. Basic labour market standards are important. All of these things I think you want in a well-off economy like ours. Whether we've ended up layering on too many of them, whether we are particularly bureaucratic in applying them I'm not sure I'm a good judge of. All I can say to you is that I've heard those same complaints as you have.
The Chairman: Mr. John Godfrey, welcome.
Mr. Godfrey (Don Valley West): Given the range of questions we've had so far, Governor, I was going to start by asking you the meaning of life.
The Chairman: That's on page 17.
Mr. Godfrey: Thank God someone has the answer to that.
.1635
Mr. Godfrey: Well, that's my question... Actually, I'd like to move from economics 100 to perhaps economic history 100, which is where I come from.
Mr. Grubel offered the intriguing proposal that low interest rates historically are linked with poorly performing economies, which is sometimes the case and sometimes not. A future colleague of his, Richard Lipsey at Simon Fraser University, has been bold enough to speculate that, not for the short-term period but for the longer-term period we're going into, we really are heading for - dare I say it - almost a golden age.
I know you're not in the comparison business of using historical examples, particularly when speculating about the future, but can you see conditions either in the economic history of this country - you talked about the 1960s and the 1950s - or in other countries in recent memory where one might, with some confidence, say this looks rather a lot like that and therefore we might reasonably expect a sustained period of economic growth?
Mr. Thiessen: I think the answer to that is yes. I can't say I've read it closely yet, but I have been through Dick's essay, which I think is just extraordinarily good. I think it reinforces some of the things my colleagues and I have been thinking, but we haven't done all the background analysis and examination of history that Dick Lipsey has done. In reading that, I found myself feeling it provides a lot of additional support for the kinds of things we've been feeling.
The kind of fundamental base of our economy just looks to be better prepared to deal with the future. The kinds of attitudes you see just seem to be far more oriented to changes - the flexibility, the increases in productivity, the need to be outward-looking. All those things seem to be in place.
On top of that, you eliminate the kind of burden accumulating government deficits were having on our economy, and indeed on most of them. All of the fundamental factors are coming together. At this moment it's difficult to see what there is out there that would cause this rather nice constellation of circumstances to fall apart, because it's not just Canada. There are a number of industrial countries where things are looking rather good.
You can also say that in the developing world there are some models of development that we haven't seen for much of the post-war period. So there are a lot of developing countries that can look and see where something has been done. They have a plan, a pattern they can follow. I regard this as all very positive.
Mr. Godfrey: What Lipsey talks about, in a jargonistic phrase, is a sort of techno-economic paradigm shift. But the basic thrust of the argument is that every once in a while a cluster of technologies and a set of economic conditions come together to produce a sustained period of economic growth. One might look to the post-Second World War period for the same kind of conditions. Do you basically subscribe to that view of the world?
Mr. Thiessen: Yes, I do. It really does. Again, I can't say I've looked at it nearly as closely as Dick Lipsey has, but there are a lot of things that remind me enormously of the way things looked in the late 1950s, as we were about to go into that decade of the 1960s - good productivity growth, rising incomes and low inflation.
Mr. Godfrey: Low interest rates?
Mr. Thiessen: And low interest rates.
The Chairman: Thank you, Mr. Godfrey. Mr. Benoit.
Mr. Benoit: In the 1950s we didn't have a $600 billion debt hanging over our head, the second highest in the G-7, second only to Italy. We didn't have interest payments of $47 billion per year to make on that debt just to service the debt, let alone talking about taking money out of the economy to pay the debt down.
There's all this back-patting and all this confidence, and I certainly hope the confidence proves to come about. But I'm not as confident, because there is this little factor that hasn't been talked about very much. I'd like you to comment on the effect of that on this whole recovery thing.
Mr. Thiessen: We did have a very high debt level after the Second World War and it did come down. Governments didn't run surpluses every year, although they did run surpluses for a number of years. The economy was growing rather well. We were getting productivity growth. So the ratio of public debt to the size of our economy was in a continuous downward movement from about 1946 right through until the early 1970s. I can't remember what the level of debt to GDP was right after the war, but it was pretty high then.
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Mr. Benoit: One major difference, of course, was that we weren't being taxed at almost 50% of our income. There was room to move up, and boy, was that room taken up by one Liberal government after Conservative government after Liberal.
An hon. member: Hear, hear!
Mr. Benoit: The tax level was taken from an extremely low level in the 1950s to 50% now. It's a much different situation.
The Chairman: Thank you. Briefly, Mr. Duhamel.
[Translation]
Mr. Duhamel: I would like to get a clarification. On page 2 of your brief, you mention:
- The external economic environment remains positive.
Mr. Thiessen: Yes, and to European countries as well. We are talking particularly of large industrial countries.
Mr. Duhamel: Is there a link with our volume of trade with those countries or is it only their actual economic context that matters?
Mr. Thiessen: Countries which are more important than ours have more impact. We look at the overall situation in Europe, in Japan most particularly, in Asia, in the United States and in Mexico.
[English]
The Chairman: I have four questions for you, Governor.
First of all, Professor Fortin appeared at the round table that kicked off our pre-budget hearings and said that we have to increase the fourchette from 1:3 to 2:4 because we have labour market rigidities, and employers would rather lay off people than actually cut wages. How do you feel about that?
Mr. Thiessen: I certainly don't agree with it. I think the information on which that kind of analysis is based isn't as reliable as it should be.
A lot of the work that Pierre Fortin and others have done comes out of a period of relatively high inflation. When you have relatively high inflation, it's not surprising that there tends to be a lot of resistance to wage cuts. If you take the average inflation rate during the 1970s and 1980s of about 7%, even a wage freeze at that time would imply an effective wage cut of 7% in real terms. That's large, so you wouldn't be surprised if people were to resist that.
In a period of low inflation, I believe that people come to adjust, come to realize that there are times that in weak industries some adjustment in the labour cost is going to be required to keep those industries working - just as, through the period of high inflation, you could see in weak industries, at times, workers accepting less than full compensation for inflation. It does amount to the same thing. So just as people adjusted to those issues during a period of high inflation, I believe they adjust to them during a period of low inflation.
I think the notion that you can fool people by aiming at a higher inflation rate just doesn't work. Unless you fool them, you don't get the impact that some of these people are looking for. What they're essentially trying to do is get a cut in wages with inflation, which people somehow don't understand and see through. I don't believe that's likely to happen. I don't believe people respond that way, so I don't think it's a sensible thing to do.
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The Chairman: I want to find a little more about the level of debt vis-à-vis the level of savings in Canada, and particularly how this would translate into prospective consumption patterns if we're going to have a consumer-led recovery.
Mr. Thiessen: It's certainly true the level of household debt is relatively high. I don't know if my colleagues can quickly get the numbers for me, but a number of 90% and some is the one that sticks in my mind.
As I was saying earlier, it's not just the level of the debt that matters. It's also the cost of servicing that debt. As interest rates have gone down, the cost of servicing that debt has gone down, and I think that really does matter rather a lot.
The other point very important to make when we are looking at those debt levels is that we calculate this ratio: household sector debt to personal disposable income. When we do that, there is a kind of implication that you have blown all that money and you have nothing to show for it whatsoever. But of course that is not true. When you do look at the total balance sheet of the household sector, what you will find is that the net worth of the household sector continues to increase. So the household sector has continued to acquire housing and financial assets of one kind or another, and the values of those financial assets have essentially been growing faster than the debt, so households are becoming in a sense better off.
That isn't true for every household. There are obviously going to be some households with lots of assets and little debt and big net worth and others that are not going to be in that situation. But I don't think you can look at the sector as a whole and say we have a serious problem here.
The Chairman: Thank you.
Third, we've had suggestions both this year and in previous years that there's a very simple fix to this whole issue of our debt and the cost of servicing it. It's very simple because, first of all, you would just print some money; secondly, you would buy up Government of Canada bonds, the interest on which would go back in through the bank to the consolidated revenue fund; and thirdly, yes, there would be inflation, but we could mop it up, or sop it up, by having the banks hold reserves. Do you have any comments on that?
Mr. Thiessen: You won't be surprised to think I certainly don't believe that is a solution to our problem at all. Essentially that's a means of printing money; it's a means of causing inflation.
I know a lot of people do the calculation that if you look at the period we were just talking about, when the level of public debt to gross domestic product was at its lowest ratio, and if you look at that time and you see the proportion of that relatively low amount of debt which the Bank of Canada held, it was a relatively substantial proportion, because there was a very modest amount of debt around. Now that there's substantially more debt the suggestion is, well, if the Bank of Canada could have held 25% of the government debt then, why can't it hold 25% of the government debt now? But that government debt is hugely larger compared with the size of our economy, and if the Bank of Canada were to buy that quantity of debt it could do so only by expanding the money supply at a huge rate, and that would simply result in inflation.
The Chairman: But the argument goes that the banks would compensate for that by having to hold reserve requirements.
Mr. Thiessen: Reserve requirements are essentially a form of tax. If you ask the banks to hold more reserve requirements, what you are effectively doing is raising the tax. But of course we know that for the most part taxes on corporations get passed through to either the shareholders or more likely the users of those services. So what that is effectively saying is that we could impose a huge tax on borrowers and depositors.
We know banks are not the only financial institutions in Canada. What you would very quickly find if you tried to impose such a tax is that you would divert business elsewhere. If you tried to impose it on other financial institutions, you would eventually see more business diverted abroad.
In the end, the people who pay that kind of tax are the people who are very small savers, people who are unsophisticated people or who don't have a choice. It's not exactly an attractive taxation policy.
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The Chairman: Fourthly, Governor Thiessen, in light of your optimism about our economic future, can I assume that you'll be voting Liberal in the next election?
Some hon. members: Oh, oh!
The Chairman: Don't answer that.
Mr. Thiessen: Mr. Chairman, you do have to understand how important it is for your central bank to be neutral, and neutral we shall remain.
Some hon. members: Oh, oh!
The Chairman: We have a couple of ridings for you. Could I suggest...?
[Translation]
We must table our pre-budget report in the House next week. Our clerk just mentioned that the deadline will be on Tuesday, December 3. Therefore, I suggest that we meet again on Monday, December 2 to discuss our report. Thus, we could table it in the House Tuesday morning or Tuesday afternoon.
[English]
Ms Whelan.
Ms Whelan: There's an anticipated vote on Monday at 12:15 p.m.
The Chairman: I don't care.
Ms Whelan: Okay.
The Chairman: It only takes a minute.
[Translation]
Mr. Bélisle, is it convenient for you?
Mr. Bélisle: Yes.
[English]
The Chairman: Herb?
Mr. Grubel: Will I need to have any minority opinion we may express to you by then?
The Chairman: You won't have to...
[Translation]
What is the deadline for tabling minority reports?
The clerk: Yesterday.
[English]
The Chairman: The deadline was yesterday.
Mr. Grubel: But is Monday okay?
The Clerk: Monday will be a bit tight if you want it to be included in the -
Mr. Grubel: It's only 100 pages.
A voice: Oh, oh!
The Clerk: Yes, I know.
The Chairman: Okay. Monsieur Bélisle.
[Translation]
Mr. Bélisle: I am going to discuss that matter with our financial critic, Mr. Loubier, and I will get in touch with you about that by tomorrow.
The Chairman: That's fine. Thank you very much.
I will send you the fourth chapter of our report next Thursday.
[English]
At the latest, I'll have our fourth chapter in your hands by Thursday.
Mr. Thiessen, Ms Kennedy and Mr. Noël, excuse us for this slight digression.
We are pleased with what we have heard today and with the direction you have taken. It seems to be working. We know that the future is not assured. You have made it abundantly clear that whatever success we might have had to date is only part of a very long journey and that vigilance will be required. As parliamentarians we have to make sure that our fiscal policy corresponds and complements your efforts at the bank to give us a sound monetary policy with price stability and low inflation. I think it's fair to say that over the last three years we've learned a great deal from working in a very constructive way with you.
We want to thank you for being with us today.
Stay the course, finish the job, and come back soon.
Mr. Thiessen: Thank you very much, Mr. Chairman.
The Chairman: We're adjourned.