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Canadian Dollar Reaches Parity with US$
boxlight writes in to mark the occasion when the Canadian dollar hit parity with the US dollar for the first time in 31 years. The article notes that Canada has run a budget surplus in each of the last 10 years. "This is actually bad for the profits of Canadian corporations that sell their products to the US for US dollars (Canada sells far more to the US that the US sells to Canada); but it means us Canucks will get cheaper Macs as the Canadian prices get closer to US prices with every new release."
Somehow that seems like little comfort for us Canadians that realize the impact this has overall on our economy. Anyone that isn't into business or economics up here gets excited about the CDN dollar being stronger because it translates into better cross border shopping for a very small minority, cheaper vacations, and some discounted consumer items like Macs. But take a look at how this impacts the country as a whole and we don't have much to celebrate as an exporting nation.
People assume that the dollar falling in value in relation to foreign currency is a bad thing. This is not necessarily the case. Here are some benefits:
* American products become cheaper to foreign markets. This helps with the trade imbalances we currently have.
* Foreign products become more expensive to American consumers, also helping with trade deficits.
* It discourages foreign workers from sneaking into the US. Getting $4.00 an hour is suddenly not so much compared to what they get paid in their home country.
I could go on, but you get the idea.
There is no "I disagree" mod for a reason. Flamebait, Troll, and Overrated are not substitutes.
Another way of looking at this is that the US dollar is in freefall against the Euro and other major currencies. The shift between the US and Canadian dollars reflects this new reality. That said, I suspect Forex traders are caught up in the euphoria of parity. The Canadian dollar might well dip significantly below $1 American again as the rush of breathless media attention dries up and currency traders take their profits and run. This certainly isn't good news for Canadian manufacturers - I run a little electronics company that sells 90% of our goods in the USA. We have raised some prices by as much as 30% over the past five years, just to maintain margins. However, our customers don't necessarily see it that way - they think we're getting greedy. To keep things from getting out of hand, we've moved some production to China and started to source North American components in the USA, rather than dealing with Canadian distributors. That's not good news for our economy.
Can the book publishers start to change their book prices, then? It made sense before when they priced them out relative to currency, but at this point, to spend $32 CDN versus $21 USD for the same book, well, as far as I'm concerned, Canadian book vendors are going to go out of business as I start to buy more from Amazon.com rather than Amazon.ca - and Amazon.com frequently offers free shipping.
In order to see anything useful, you should also plot the Euro and the Yen. While the CAD has increased slightly in buying power in recent years, the bigger news is that the USD has plummeted, likely due to bad fiscal policy (war debt).
These things are called psychological barriers. Likewise with the $1.40 per Euro mark that was reached at about the same time. If these barriers fall, people take extra notice of the trend, not because there's much of a difference to the day before, but because humans pay more attention to round numbers. On your 20th birthday, you're just one day older than the day before, but you don't celebrate the day before or after your 20th birthday. It's kinda stupid, but that's the way it is.
Meanwhile, while I sit in Europe trying to irk my way through grad school living off of dollars I saved while I was in the army(and a part-time job doing IT stuff for a small business), I watch their value and my immediate standard of living drop.
I'm sorry that has happened to you. Unfortunately, anytime the value of something changes, someone wins and someone loses. I know hindsight is 20/20, but how far did you expect to get living in Europe with US dollars in the bank? Why would you not change those over to Euros when you decided to live there?
As for the idea that discouraging foreign workers is a good thing, might I ask in what universe you live in? Do you actually want to pay 25 bucks for a meal in a cheapish restaurant? That is what will happen if the immigrant labor leaves.
I have no problem with immigrant labor. What I have a problem with is illegal immigrant labor. Sure, it helps me get a cheaper burger at Chili's, but when I have to pay $50 for an aspirin at a hospital, I figure I'm not saving all that much. Besides, slavery allowed for cheap food and clothing as well, but that doesn't make it right. When an illegal is working at a plantation.. I mean farm, they are more or less owned by that farm. Only instead of being shackled by chains, they are shackled with the thread of deportation or imprisonment. I expect foreign workers in the US to get a fair wage. When that worker is here illegally, enforcing minimum wage or any other labor laws is impossible.
There is no "I disagree" mod for a reason. Flamebait, Troll, and Overrated are not substitutes.
Our beloved, once great country (the USA) is in serious financial trouble. China has been acquiring dollars for awhile now with the trade surplus they've had with the USA for some time. Usually this isn't a problem as the trading country reinvests these dollars into the USA's markets and businesses. This is good for the USA as you can imagine. In theory it should also raise the value of the trading countries currency because their GNP should be higher. But imagine the trading country keeps its currency artificially low so it can export things cheaper and cheaper and acquire more money (dollars) faster to build more and more factories, etc. It does this by sending the dollars back to the USA in the form of treasury bonds.
Now imagine the USA expected a surplus and made a huge tax cut because of it. And then the surplus never happened so a huge debt was created. Someone has to pay this debt off. Imagine if the people paying this debt off are the ones you are running a trade deficit with. Hence, our trading partner buys treasury bonds at an alarming rate.
This works great for the USA short term because we get cheap goods from China (because their currency is still of low value because they invest their profits right away) and save a little bit on taxes. Well, a lot if you're rich.
But as you're probably starting to realize, this can't go on forever. Eventually it's going to collapse. At some point the debts will have to be paid and this will be done by raising taxes and INTEREST RATES. So now not only is the dollar worth less because everyone has a ton of them around the world, but it costs a ton to borrow them so no one wants them.
All of a sudden the value of your house is half of what it was, the value of your paycheck is half, etc. A domino effect is created because no one can afford to borrow money any longer. American business doesn't take risks, people can't take risks, and money is tight. We haven't experienced this in a long time. Money has been cheap. It's been the USA's biggest seller. The dollar was valuable and it was available. That's prosperity. Imagine the dollar being expensive and worthless. That's a depression.
So expect the Canadian dollar to become more and more valuable against the USA dollar for awhile.
"If you are a dreamer, a wisher, a liar, A hope-er, a pray-er, a magic bean buyer
Their military budget is a joke when compared to ours. That's why they're able to run a surplus -- it's not being spent on defense.
Whether that's a good thing or not is a matter of opinion, but their lack of a military being the reason they can be more socialized is a matter of fact.
>>Socialism is great till you run out of other peoples money.
So are budget deficits. Wait until the Chinese get sick of funding yours.
> Although like most US policy of the last 6 years, instead of fixing the issue they plan to take over others. Soon Canada, the U.S. and Mexico will share the "Amero" as currency within the North American Union."
Dream on. Canada hasn't had a federal budget deficit in more than a decade, and social security is fully funded on an actuarial for the next 75 years (that's right - 75 years, its not a typo). Contrast that to the US deficit, and the unfunded mess that is known as social security, with off-the-book intra-government "lending" totalling 75 trillion.
You can have our loonies when you pry them from our cold dead hands! Actually, not even then! There's more of a chance of switching to the Euro as the greenback slowly does its imitation of SCO stock.
Kevin Smith on Prince
I am not at all surprised to see parity. Canada has a strong economy and Alberta especially so.
There are many reasons for weakeness in the US currency including but not limited to a massive government debt and a glutonous appetite for foreign oil.
Yesterday T. Boone Pickens was on TV on the business channel I sometimes watch. He made a number of interesting comments:
1) World oil production is about 85 million barrels per day and T. Boone does Not think it can be increased. The best information I have comes from expertize within the Geological Survey of Canada, but this expertise is certainly not limited to the GSC, and we are now pegging the peak of work oil production at September 2006. If production increases above that level then it will not be by much. T. Boone commented that the estimated demand for 4th quarter 2007 is 88 million Barrels per day.
Hence we will see the oil price driven up in order to destroy demand. In all likelihood it will get worse.
2) T. Boone says he favours nuclear and pointed out that General Electric says they can build a reactor in 3 years plus the friction added by the regulators and dealing with opposition. Probably this is correct.
3) Canada is ramping up Tar Sands as fast as we possibly can which explains why our economy is so strong. We cannot increase production has enough to make much of a difference. Currently we are investing billions per year.
Currently the USA consumes about 23 million barrels of oil per day.
Any way you want to slice it - this is not good news. It is clear the US dollar will continue to weaken is decades of political scrapping and decades of economic mismanagement finally face their day of reconning. As has been said many times, in order to avoid the melt down of our economies due to lack of energy availablity and high cost, we have to build at break neck speed an infrastructure that can replace oil and gas. We needed to start about 15 years before the peak of world oil production. We have not done so.
If the peak really was last year, then all hell is about to unfold and it will not surpise me to see gas rationing in the not too distant future.
Some things to remember.
Ethanol will not solve the problem. 100% of the US corn production will provide less than 2 weeks of liquid fuel. Next, ethanol from any source lives by the equation that 1 tonne of dry plant mass yields the equivalent of about 2 barrels of oil and this if we can do the conversion for free. This includes cellulostic ethanol.
We don't have the plants build anyways.
Industry runs under much tighter constraints than consumers. A consumer will simply give up a dinner at a restaurant in order to save the money to pay for his next tank of gas. Industry shuts down the plant and lays everyone off. We have already lost most of the North American fertilizer industry and plastic feedstock production (IE the pellets that go into injection moulding machines) is also going to die. Electricity production from Natural Gas is not threatened yet but expect power costs to continue to climb as this sector pushes out weaker sectors. In all cases jobs are lost and expensive infrastructure goes idle.
If one looks at the mortgage crisis and factors in the job loses precipitated by energy issues, then it becomes clear that this picture is not yet well understood.
Next consider how a government deals with recession? They print currency. Faced with the choice of inflation or recession, which do you choose? People on fixed incomes will lose their retirement.
Of course - one way to look at this is that its the retiring generation that lived beyond their means and created the mess. Their children certainly didn't. So maybe its poetic justice. However I do not think that people realize how bad its going to be. I watched my father-in-law lose his retirement because of the inflation Pierre Elliot (Idjot) Trudeau and his henchman Jean (Cretin) Chretien during the 1970's.
In part this