The Canadian Dollar Makes Its All Time Record

Oh my:

The seemingly unstoppable Canadian dollar surged to its highest level yet Wednesday, topping 106.17 cents (U.S.).

The record came just after 4 p.m., when official trading ended for the day. Officially, the dollar closed at 105.85 cents, up nearly a cent from Tuesday's close, but trading continues virtually around the clock.

By cracking through 106 cents, the dollar topped what most observers believe to be the old record of 106.14 cents set on Aug. 20, 1957.

As a Canadian it looks like I'm going to have to rewrite my own contracts with US customers so I don't lose even more money to this. Funny how your own advice (I was writing about the dollar's inexorable rise years ago) is the hardest to take.

Canada's a petro-economy now. That's a mixed blessing, but it is making consumer goods cheaper and it is fueling a massive boom in Alberta. It's also gutting Canada's manufacturing sector, and is especially hitting southern Ontario hard, since it's caught between Detroit's collapse (which is now so extreme that even cheaper costs due to universal healthcare can't make up the difference) and the dollar's rise.

The dollar's rise is one reason why Quebec, whose economy can be summed up as "power to New York, farm goods to the rest of Canada," is feeling generous towards the conservatives - those export earnings are going far.

Overall I'm not pleased with the dollar's rise. In 7 years it's risen around 50% against our main trade partner. Since Americans have to have oil, natural gas and electrical power no matter what, they've had to pay, but it's devastating our industrial sector. What would you do if, for no reason you have any control over, the majority of your expenses rose 50%? In many cases there'd be nothing you can do, you can't pass on those sort of increases to your customers when China has been spending about 10% of GDP to keep their prices down.

Eventually the oil boom will end. All resource booms do. And when they do Canada's going to have a lot less of an industrial sector than it used to. Resource wealth is, generally, fake wealth. It builds very little permanent prosperity for those who have it. It is, though those getting wealthy in Canada's oilfields won't believe it, a curse.

Once the Maritimes, with their great tall straight trees, were one of the jewels of the British Empire. Today maritimers live on what amounts to federal government aid. When the trees (and later the coal) were no longer needed, none of the money that had poured out of the ground stayed.

That's the future of Alberta, almost certainly. What I fear is that it is the future of Canada.

Comments

[JohnCitizen]

THE SUPPLY-SIDE SCAM

The George Bush $3 trillion dollar tax giveaway to the rich over the past 6 years has been a disaster for average Americans. Supply-side (trickle-down) economics is a bogus theory promoted by those who benefit from it. In a mature capitalist system, supply side never rules, it is always the demand side of the equation that governs growth and well-being. Think about the 1930s Depression, General Motors had plenty of supply, but demand evaporated.

Previous U.S. economic downturns have been cured with only $200 billion in tax cuts targeted to the middle class, because the consumer (the great middle class and 2/3rds of the economy) spends that tax cut and primes the economic pump. But George Bush has raised the debt that our children and grandchildren will have to pay from almost $6 trillion to over $9 trillion for current economic growth (i.e. we all get trickled on, as the rich spend some small fraction of their gains). Unfortunately, this supply-side growth has been largely and uniquely without wage gains, and so has shrunk the middle class that makes America strong and great. Also, this growth has already ended ($3 trillion flushed down the toilet and gone!), as the FED has had to cut interest rates because recession is looming. Massive debt has led to a weak dollar, which is now at record lows vs. other major currencies because of the FED interest rate cuts. In turn, the record low dollar has produced record oil prices ($95/barrel); and any additional needed FED interest rate cuts could cause a free fall in the value of the dollar, and guarantee recession or worse (Catch 22)!

[MrLion]

During the 1990s, the following joke was making the rounds in Canada: "The government is about to issue a new dollar coin. It's an American quarter." How things have changed.

[kvass]

Nonsense -- through the mid fiftires it was sitting a 1.08.

[cgreen23]

Wow, scary thoughts.

But big thoughts, too, so they're provocative, and that's always good.

Makes me realize the falling dollar in the US has some upside to it as well. (Though writing this from overseas at the moment I'm not personally experiencing them).

Natural resources wealth is fake, in some sense, as you point out. The trick is I suppose to reinvest it in something else before you spend it all. That's a hard trick to do.

Then again there's the resiliency and work ethic of Canadians. That's relevant too, and not a thing to bet against.

Net net? We'll see.