Loonie bests the greenback

[bascule]

The US Dollar is now valued below the Canadian Dollar.

 

http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=CAD&submit=Convert&

 

What does this say about America's fiscal policy?

 

The Senate just approved a measure to raise the statutory limit on the national debt:

 

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=1&vote=00354

 

The Fed just lowered interest rates to satisfy Wall Street.

 

Is the greenback becoming increasingly irrelevant?

 

I think the Fed has been underregulating and our government has been far too unconcerned with sound fiscal policy. The Bush tax cuts coupled with increases in spending have massively ratcheted up the national debt. Both of these have negatively impacted the dollar.

[Realitycheck]

Just goes to show you how much respect we get when the loonie beats the dollar.

[Pangloss]

I didn't realize that some states were allowed to have their own play currency. Aww, that's so cute!

[John Cuthber]

Which states are those?

[PhDP]

My "fellow" Canadians don't have the time to be proud of their currency, they are panicking about exports.

[swansont]

Actually, I think the twonie is kinda cool. I like how the Canadian government just went ahead and introduced the coins and ensured their use by yanking the bills from circulation. In the US, there's too much worry about how unpopular things will be, and little regard for the big picture of overall good. (we go "Ooh, but I don't like carrying change," and nothing ends up changing — just a big ol' stack of dollar coins that can't be forced into circulation, while the Canadian government just decided "Tough, it will save money" and did it.) There was consternation when we marginally unblanded some of the currency in the past few years by using some color other than green. Sheesh.

 

Though as I understand it the US $1 and $2 get plenty of use in Canada in, er, "Gentleman's clubs"

[PhDP]

Yep, but our government should stop making 0.01$ (they cost more than 0.01$ to produce), and perhaps even 0.05$.

[swansont]

Yep, but our government should stop making 0.01$ (they cost more than 0.01$ to produce), and perhaps even 0.05$.

 

And I bet they do that before the US does.

[CDarwin]

And I bet they do that before the US does.

 

How would we pay for our stamps?

[ecoli]

How would we pay for our stamps?

 

in stamps.

 

 

The dollar may be depreciating... but the US still has one of the highest GDPs in the world... higher than canada, I beleive.

 

And anyway, a lower value of US dollars makes goods produced by the US more valuable in international markets. Goods manufactured in europe will be more expensive then US goods, so we'll wind up getting more business. That also means that Vermont Maple syrup is more competitive against Canadian maple syrup!

 

So, it's bad news for travellers, but it's certainly not the end of the world.

 

I think the biggest problem is that much of the US currency is based around oil and the value of oil. If we become more energy independent, then we can have more control over our own currency and the value of the dollar would be more stable.

[Sisyphus]

How would we pay for our stamps?

 

Only sell stamps in multiples of five?

[CDarwin]

Only sell stamps in multiples of five?

 

Well if you're going to be unreasonable.

[PhDP]

And I bet they do that before the US does.

 

Perhaps, but it should have been done several years ago. Many economists are now thinking that we should get rid of both the 0.05$ and 0.10$ pieces. And we still have 0.01$ in circulations.

[swansont]

How would we pay for our stamps?

 

Round up or down. One (US "Forever") stamp would probably be $0.45, five for $2.05. Despite all the potential griping, retailers would probably love it, being able to more easily accentuate bulk purchasing discounts.

 

It's not like this is unprecedented or anything. We buy gas that's priced to 0.1 cents, and we round. In Italy they used to do the same thing, but shifted over a few decimal places — no 10 or maybe 20 Lire coins or smaller, IIRC, before changing to Euros.

[CPL.Luke]

the dollar coin is the most annoying thing ever to be produced, they get lost like all cahnge does except of dropping a few dimes or maybe a quarter your dropping dollars.

 

 

also the US GDP is something on the order 30% of the worlds with europe carrying another 31% or so (ever so slightly higher) and the rest is divided up among the other countries.

 

One major problem with dollar prices depreciating is that 60% of the worlds wealth is contained in US dollars, and while most of that money is in investments and thus no one will lose money. people are more likely to hold investemnts in other currencies where they can get better returns, thus they're are more dollars on the market and the price of the dollar further declines.

[ecoli]

the dollar coin is the most annoying thing ever to be produced, they get lost like all cahnge does except of dropping a few dimes or maybe a quarter your dropping dollars.

 

 

also the US GDP is something on the order 30% of the worlds with europe carrying another 31% or so (ever so slightly higher) and the rest is divided up among the other countries.

 

One major problem with dollar prices depreciating is that 60% of the worlds wealth is contained in US dollars, and while most of that money is in investments and thus no one will lose money. people are more likely to hold investemnts in other currencies where they can get better returns, thus they're are more dollars on the market and the price of the dollar further declines.

 

However, there are certain factors that will keep the dollar afloat.

 

The vast majority that China trades in is US dollars. There is a good reason for this. As long as china-manufactured goods are cheap, the US will continue purchasing them. If china switches to Euros, Chinese manufactured goods will be more expensive in the US then China's competitors. As long as the United states is china's chief market for manufactured goods, China will keep trading in US dollars... which will keep the dollar up.

 

Also, the two top oil consumers in the world are US and China. Both, which still trade oil in US dollars. (at least, I think china still does). As long as the Saudi's and other mid-east countries continue to trade oil in dollars, the US will support arms deals and things like that which are required by middle eastern countries. So, the large oil producers in the mid-east which rely on allying the US will still trade in dollars.

 

I think the only thing that will dramatically change the economic landscape is if the US becomes energy independent (not likely right now). But if that happens, wouldn't the US attain greater control of it's own currency? Would that push the dollar back up?

[bascule]

And anyway, a lower value of US dollars makes goods produced by the US more valuable in international markets. Goods manufactured in europe will be more expensive then US goods, so we'll wind up getting more business. That also means that Vermont Maple syrup is more competitive against Canadian maple syrup!

 

That's one way of looking at it, unfortunately we've posted record trade deficits for the past several years.

 

That said Americans depend on imports for all sorts of day to day goods. We feed and clothe ourselves with imports, drive imported cars (or for the more environmentally conscious among us ride imported bikes), and come home to living rooms filled with imported gadgets.

[ecoli]

That's one way of looking at it, unfortunately we've posted record trade deficits for the past several years.

 

That said Americans depend on imports for all sorts of day to day goods. We feed and clothe ourselves with imports, drive imported cars (or for the more environmentally conscious among us ride imported bikes), and come home to living rooms filled with imported gadgets.

It doesn't necesarily have to be that way, though. If demand for US becomes higher on international markets, business that's traditionally moving out of the US could come back (and it wouldn't be improbable for the government to offer additional incentives for this to occur). The reason why the US imports all our goods is because domestic products are too expensive and people won't buy them anyway.

 

Obviously there are other reasons for outsourcing, but I see that as the big one... we really don't have a labor problem and we give our large businesses plenty of tax cuts...

[iNow]

The reason why the US imports all our goods is because domestic products are too expensive and people won't buy them anyway.

 

Also, as a general rule, citizens of the US have too bloated of an ego to do the more menial jobs that are required to produce the products we rely on daily.

 

I'm not painting your stupid house. Hire a Mexican.

I'm not cleaning your stupid toilets. Hire a Laotian.

I'm not stuffing laces into sneakers. Hire a Chinese.

I'm not going to continue, because you get my drift.

[ecoli]

Also, as a general rule, citizens of the US have too bloated of an ego to do the more menial jobs that are required to produce the products we rely on daily.

 

I'm not painting your stupid house. Hire a Mexican.

I'm not cleaning your stupid toilets. Hire a Laotian.

I'm not stuffing laces into sneakers. Hire a Chinese.

I'm not going to continue, because you get my drift.

 

First of all, your post is largely a fallacy, that has never been proven... Will an american really not do those jobs if they really had no other choice? I challenge you to prove it. (not in this thread)

 

At any rate, even if it were true, most people wouldn't consider factory work a 'menial' job. Lots of factories, while they may be considered "unskilled" jobs, require work that still can be challenging.

 

And, even if THAT was untrue, and no 'true American' would do that sort of factory job... we still have plenty of immigrants who would gladly take those type of jobs (legal and otherwise).

 

If we have to reduce unemployment benefits if we have a shortage of jobs or relax immigration laws, we can do that too.

[Pangloss]

Also, as a general rule, citizens of the US have too bloated of an ego to do the more menial jobs that are required to produce the products we rely on daily.

 

I'm not painting your stupid house. Hire a Mexican.

I'm not cleaning your stupid toilets. Hire a Laotian.

I'm not stuffing laces into sneakers. Hire a Chinese.

I'm not going to continue, because you get my drift.

 

Well, unlike ecoli I think you do have a point there (though he makes a good one as well), but I did just want to add that one of the nice things about this country is that I can render the above representation utterly false by simply allowing said Mexican, Laotian, and Chinese persons to repeat the following words:

 

“I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty of whom or which I have heretofore been a subject or citizen; that I will support and defend the Constitution and laws of the United States of America against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I will bear arms on behalf of the United States when required by law; that I will perform noncombatant service in the Armed Forces of the United States when required by the law; that I will perform work of national importance under civilian direction when required by the law; and that I take this obligation freely without any mental reservation or purpose of evasion; so help me God. In acknowledgement whereof I have hereunto affixed my signature.”

 

[bob000555]

This is something that was expected to happen, I'll name just a few of the reasons why.

 

 

 

1. Deficit - as any student of macroeconomics will tell you when a state builds up a large debt it's currency deprecates...yeah cutting taxes and paying for a war at the same time is fun!!

 

 

 

2. Interest rates - Any time a central bank cuts interest rates it cause inflation, at least to some degree. Indeed this is one of the basic principals of economics, basically when the Federal Reserve meats they have to consider inflation vs. growth; cut rate and you increase inflation but encourage growth, rise rates and you slow inflation but growth at the same time.

 

 

 

3.The carry trade - This has become a big deal in recent months, basically it's a form of financial arbitrage. Arbitrage coming from the French word for "with out risk", in the case of the carry trade it reefers to taking out a loan in a low interest rate country and loaning the cash in a higher rate country. E.g You barrow $10,000 at the current fed funds rate(quoted on the Chicago broad of Trade as 4.75% as of toady),convert it into 4920 Pounds, and invest it in U.K Treasury bonds which currently yield 5.75% interest. After the 1 year you get 5202 GBP when your U.K bound matures. Assuming exchange rates haven't changed since then, you get 10560.26 USD, $10475 of which you use to pay back your original loan and pocket the $85.26 difference. Your one trade wont effect exchange rates but if you look at multi-billion dollar hedge funds exacting this sort of trade multiple times you can get see where the big difference comes from. So how does a USD/GBP carry trade effect the USD/CAD exchange rate? Well another form of arbitrage handles this, something called a triangle arbitrage. Lets say for example Goldman Sachs(one of the worlds largest investment banks) just carried out a $100 million carry trade causing the US dollar to deprecate 5 cents versus the GBP. To carry out a triangle trade an investor could convert $100 into 45GBP into 110CAD into $105 netting 5 dollars instantly. After a few hundred triangle trades the CAD/USD exchange rate would fix it's self on the free market to make the triangle trade unprofitable. Now consider the fact that there are super computers whose whole job is to constantly monitor exchange rates and as soon as a triangle trade opens up dump millions of dollars into it, thus Goldman Sachs carry trade would lead to a one billion dollar triangle trade thus the USD falls a few points. Thanks to its low interest rates relative to the global economy. Oh...I just read what I wrote...my attempt at an economics 101 explanation turned into a Financial Derivatives 303 lesson in arbitrage...

 

Anyway...this is a case where in my humble opinion the interest rate cut was justified even tho it hurt the dollar.The credit crunch/ Mortgage bubble had to be fixed, a matter of putting out the forest fire before you go planting new trees I suppose.