Looking for a “big gulp” experience? Fill up your gas guzzler. With gasoline at $1.20 per litre in Canada, it can bring a lump to your throat and tears to your eyes.
Yesterday, the Bank of Canada concluded that the Canadian economy is facing a difficult time over the next two years. In an ongoing effort to provide stimulus, the key overnight rate is being dropped by 50 basis points (100 basis points = 1.00%), with the expectation that other interest rates will follow.
Many factors are starting to impinge on the confidence of Canadian consumers. There are worries about the spillover of housing and financing problems from the United States. In Canada, existing home sales are on the wane, listings are rising and home price increases are moderating. New car sales, wholesale trade volumes and retail sales all retreated in February versus January. And then there is the high cost of gasoline and other fuel prices. Individuals and families are re-assessing their finances.
The overnight rate is also being cut to reduce the gap with the lower U.S. federal funds rate. The larger the spread between Canada’s key rate and the policy-setting rate in the U.S., the greater is the upward pressure on the value of the Canadian dollar. The high-valued Canadian dollar has tethered the exports of this country’s manufacturers.
However, the effort to take pressure off the loonie is being undone by new record highs being set for the international price of oil, now at nearly $120 US per barrel. There is a lesson in this for Canadians that lies in history.
Canada has always been known as a resource-based country. Early Canadians used to be known as “hewers of wood and drawers of water”. That’s a phrase that comes from the Book of Deuteronomy in the Old Testament of the Bible. Quoting from Deuteronomy makes one seem erudite, don’t you think? (Actually, it also appears in the Book of Joshua.) Of course, the phrase originally applied to different people in another place and time.
However, things in this country have changed from pioneer days. Modern-day Canadians like to think of themselves as sophisticated high-tech “doyens” or financial “mavens”. I just got my hands on a thesaurus. Anyway, we like to be thought of as sophisticated, with hockey as a side-interest.
Nevertheless, resources continue to play a major role in how we appear to others. In international currency markets, the “loonie” has become a petro-currency. The value of the Canadian dollar now often moves in tandem with the world price of oil.
The oil reserves being developed in Alberta’s Tar Sands − something like 180 billion barrels − are the second largest in the world next to Saudi Arabia. The earliest methods of extraction in Alberta involved open pit mines and bucket-wheel excavators.
The latest, cleaner technology is the SAGD approach – steam assisted gravity drainage. In this method, steam is pumped into the ground through one pipe, which loosens the heavy oil trapped on particles of sand, and the resulting liquidized froth is pumped back up through a second pipe. The second pipe is drilled deeper than the first pipe.
Therefore, there is a more appropriate modern phrase to describe Canadians as opposed to “hewers of wood and drawers of water”. We may now best be described as “steam-assisted gravity drainers of oil and pumpers of gas”.
This may not have quite the same biblical or Shakespearean ring, but it is more timely and accurate. Practice saying it a couple of times until you are comfortable with it.