SHORTLY before the recent federal budget, the Canadian Centre for Policy Alternatives, in what has become an annual event, released its own "Alternative Budget." Its centrepiece was a call for a one-percentage- point reduction in interest rates, to be effected by a discreet change in policy at the Bank of Canada.

All sorts of good things were conjured to flow from this, including a balanced budget. For where the CCPA used to publish documents with names like The Debt/Deficit Hoax Exposed, it now wishes you to know that it takes the debt seriously, and we must balance the budget, just so long as nobody takes that to mean cutting spending. So: Lower interest rates and the deficit disappears - in five years, yet. Nobody here but us fiscal conservatives.

Of course, the CCPA was also calling for a one-percentage-point reduction in interest rates a year ago in the previous Alternative Budget. Since which time the bank rate has in fact fallen by about three percentage points. So my first question is this: Is it the position of the CCPA that the Bank of Canada should now raise interest rates by two full percentage points? Or is it merely that interest rates, wherever they happen to be at any given time, should always be one percentage point lower?

Actually, the astonishing thing is that interest rates are so low. The doctrine that interest rates should always be lower than they are - a logical impossibility as much as an economic one - may be the acme of progressive opinion in this country, but the annoying fact is that nobody has to lend us the money. Bond markets are forever described in the press as "nervous" and "skittish," but it seems to me in handling Canadian debt that they show all the steely sang-froid of a bomb disposal squad.

In a country with an $800-billion national debt - twice that, counting the Canada Pension Plan - whose citizens are currently making nervous jokes about civil war, it is little short of amazing that we should now be paying lower interest rates than in the United States, whose national debt is a fraction of ours proportionately and which had its civil war more than a century ago. This has led to a lot of excited talk in the press of a "Made-in-Canada" interest rate policy, which the current Governor of the Bank of Canada seems in no hurry to discourage.

After what happened to his predecessor, it is understandable that he should want to claim a bit of credit. But as the Governor would be the first to acknowledge, the bank does not and cannot set interest rates directly, except in the very shortest of terms. The interest rate at which creditors are content to lend to Canadian governments cannot be dictated unilaterally by the would-be borrowers - least of all those with a 30-year record of lying about the value of their currency, which is what one means by inflation.

Investors have long, painful memories of being burned by inflation. On the other hand, they are quick to forgive, especially if there's a buck in it. What matters for Canadian interest rates is how much those memories of past inflation form their expectations of the future. When former governor John Crow first set his sights on zero inflation, he had a legacy of distrust to overcome.

Indeed, as his successor has lately conceded, even under Mr. Crow, policy in the late 1980s was far too loose, the fuel for rising asset prices, rising debt levels, rising expectations of inflation - and rising interest rates. That's right: it is looser monetary policy that leads to higher interest rates, not the contrary. It is only when investors saw evidence of the promised lower inflation, not only in Mr. Crow's words, but in slower growth in money supply, that interest rates began to fall.

At that, they have other places to put their money. Today's low interest rates may be "Made-in-Canada," in the sense that they are in part determined by expectations of the domestic rate of inflation, over which the Bank of Canada has demonstrated its mastery. But they are as much determined by the expected rate of inflation in other countries, crucially the United States. If interest rates are now lower in Canada than in the United States, it is entirely because our inflation rate, at roughly 1.5 per cent, is half of theirs.

Anyway, so far as policy is "Made-in-Canada," it would seem to put us at odds with the "Made-in-America" policy prescribed by the Liberals before the last election: That we should aim for a rate of inflation that was "no lower than" the American inflation rate, and should under no circumstances seek to do better. So my second question is this: Is it the position of the government of Canada that we should now double the inflation rate?