The loonie took a beating alongside stocks last week, falling 7.77 cents or 8.4 per cent this past week, and 2.59 cents alone on Friday.  The loonie has now dipped below 90 cents against the U.S. greenback.  The silver lining is that non-resource manufacturers will likely benefit from this drop because their main customers tend to be in the US.

Canada is a country with various regional economies, each which have a unique boom-bust cycles.  This acts as a natural hedge against tough economic times. When the Canadian dollar is low, non-resource manufacturing prospers.  However, the competitiveness squeeze caused by the high dollar and the huge and growing trade deficit with Asia has resulted in the loss of some 250,000 manufacturing jobs since the peak in 2002.

Finance Minister Jim Flaherty announced Friday that the federal government will buy $25 billion worth of mortgage debt from Canadian banks in a bid to stabilize the lending industry and encourage lower interest rates.

Due to the subprime mortgage crisis, financial institutes are reluctant to lend money, and if they are, they’re charging significantly-higher rates. Consumers are not the only ones affected by higher interest rates.  To recoup losses, banks will likely have to increase their lending rates to businesses, which will further serve to stagnant business growth in Canada.  To compound the problem, banks have ceased to trust one another and letters of credit backed by once-revered global banks are not carrying any weight at the moment.  Some companies have managed to get around the problem by using alternative financing, but in some areas, trade has dried up completely.

The cash infusion into the banking system should ease pressure on lending institutions and prompt banks to lower their interest rates.  Hopefully, this will be sufficient get business back on track.

[ Image courtesy of the Toronto Star ]

During the Leaders’ english debate on October the 3rd, one issue that was broached was the federal SRED (Scientific Research and Experimental Development) business incentive program. Under the existing federal SR&ED program, non-profitable corporations with large revenues may receive research and development tax credits that cannot be applied.  Liberal leader Stephane Dion and Bloc Québécois leader Gilles Duceppe both proposed that these tax credits be partially refundable.

“A Liberal Government will encourage all companies to innovate, even if their innovation does not lead to immediate profitability, by making the SR&ED Tax Credit partially refundable. This change is vital at a time when many companies are struggling to become or stay profitable.  Every company that puts money into R&D should be rewarded for innovating.” [ Source ]

Large corporations can sometimes receive millions of dollars in tax credits through the SR&ED program.  I think that this measure, if implemented, will increase the cashflows of these large corporations drastically!