Canadians Not Happy About US Dollar Fall
Toonie
A cheaper US dollar is almost certainly in the short-term interests of the United States as it will boost employment and help us get out of the recession. But perhaps more importantly, it’s in the medium-term interests of just about everyone, since it would set the stage for a rebalanced global economy. The problem is that it’s very hard to find any examples out there of “matching” countries whose leaders are excited about the prospect of more-expensive currencies and the enhanced consumption possibilities that would be opened up. For example, the Canadian economy has been a good deal stronger than the American over the past 18-24 months so the Loonie has shot up relative to the Greenback. This means Canadian citizens can afford more goods and services than would otherwise be possible, but it has PM Stephen Harper worried:
Some of the Canadian dollar’s sharp climb is justified by fundamentals but too rapid a rise could damage the country’s economic recovery, Prime Minister Stephen Harper said Tuesday.
“Obviously, it is a concern,” Harper told reporters, noting that Bank of Canada Governor Mark Carney had also worried about volatility in the currency.
He’s not wrong, exactly. Unfortunately with employment looking weak in pretty much every country around the world, no leader anywhere seems to believe that his country can withstand a large short-term increase in value. But eventually the shift has to happen, and I don’t really see what the way out is.
37 Responses to “Canadians Not Happy About US Dollar Fall”
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October 14th, 2009 at 1:01 pm
Matt you should read Martin Wolf’s column in today’s FT.
October 14th, 2009 at 1:02 pm
If Harper doesn’t like it, then it can’t be all bad, can it?
October 14th, 2009 at 1:06 pm
Unreflected Hyperkeynsianism can be so boring. Shouldnt a weak dollar be against the interest of the United Staates in that Keynsian model, since its kind of uncooperative which will lead to retaliation by the other countries…
October 14th, 2009 at 1:11 pm
For example, the Canadian economy has been a good deal stronger than the American over the past 18-24 months
Try the past decade or so. I don’t think Canadians have experienced the decade-long slump in wages and household incomes enjoyed by the people who foolishly opted for two terms of kleptocratic governance.
October 14th, 2009 at 1:15 pm
What is wrong with this picture? Everyone in the world makes stuff and sends it to the US, and loans Americans the money so they can buy the stuff.
October 14th, 2009 at 1:22 pm
We prefer to think of it as “the Canadian dollar’s rise.” Or in my case, “an excuse to go to Vegas.”
October 14th, 2009 at 1:23 pm
“A cheaper US dollar is almost certainly in the short-term interests of the United States as it will boost employment and help us get out of the recession.”
I didn’t get this. A dollar valued lower than other currencies helps other nations buy from us, but that is a long or medium term goal. I have never heard that a low dollar helps in the short term. For Yglesias who advocates Keynesian deficits, the lower dollar makes it harder to run deficits.
October 14th, 2009 at 1:27 pm
Also, some items, such as books, have their cover prices set at a particular exchange rate which doesn’t then float, nor indeed does it often change as the US$ weakens. So books become pricy up North.
October 14th, 2009 at 1:32 pm
I missed the worst mistake in that post. The current Dollar valuation is in no way where the Dollar has to go on the long run. Its rather the case the Dollar is slipping fare below ppp for a while during the adjustmen to more tradable goods and less consumption.
October 14th, 2009 at 1:41 pm
Yes, the sinking greenback is a concern but Canada has been whining about this for years every time it happens. Canadian makers of things have been hiding behind a cheap buck for decades despite exhortations to invest in efficienvy and productivity.
There’s another side to the loonie also. Imported oil (and Canada does import quite a bit of the stuff to keep people warm in the east) gets cheaper and so does US-made machinery and equipment.
It would be far less worrisome for Canada if Canada had developed markets beyond the US and not become as attached. Many Canadian businesses have only lately bought atlases and added C-h-i-n-a to their list of new words.
October 14th, 2009 at 1:50 pm
The dollar is very much undervalued vis-a-vis the Euro and Loonie as far as PPP is concerned. The current account deficit is large. It seems reasonable, then, to believe that the dollar will *gain* in the long run against those overvalued currencies, and that the trade deficit will be rectified by increased savings in the US and decreased savings elsewhere.
October 14th, 2009 at 1:52 pm
Canada designed their stimulus spending to be even more backloaded than the US did. If they wanted to prevent sharp appreciation against the Dollar, they probably should have avoided that.
October 14th, 2009 at 2:21 pm
As a Canadian about to leave for a two week sojourn in Hawaii, I’m happy to see the rising of the Loon.
October 14th, 2009 at 2:22 pm
I don’t think Canadians have experienced the decade-long slump in wages and household incomes enjoyed by the people who foolishly opted for two terms of kleptocratic governance.
And you would be wrong.
http://myweb.dal.ca/osberg/classification/book%20chapters/Canada%20economic%20performance/Canada%20economic%20performance.pdf
October 14th, 2009 at 2:36 pm
And you would be wrong.
JMO: And you would be an idiot. That study you provide talks about Canadian economic performance through 1990. The discussion at hand is clearly dealing with recent events, hence my use of the phrase “past decade.” Please get back to us with something relevant, ie., a study that shows Canadian economic performance lagging that of the US during the George W. Bush years. I doubt very much such a document exists, but I’ll gladly retract if you can prove the crappy US economy of the past decade bested that of Canada.
October 14th, 2009 at 2:46 pm
As one of the recent StatsCan studies reports, the median earnings of Canadians employed all year on a full-time basis increased by just $53 – from $41,348 in 1980 to $41,401 in 2005 (in 2005 dollars).
http://www.acswcccf.nb.ca/english/documents/Poor,%20middle-income%20earners%20did%20not%20share%20in%20wealth%20boom.doc
October 14th, 2009 at 2:49 pm
Jasper,
doubt very much such a document exists
Statistics Canada reported Thursday that once you adjust for inflation, Canadians’ median earnings barely budged between 1980 and 2005. And, the agency said, while earnings rose sharply for the richest fifth (”quintile”) of Canadians, median earnings actually fell for the poorest fifth of us. Could this be right? After years of economic growth, are we really just treading water, and many of us sinking?
October 14th, 2009 at 2:56 pm
jasper,
And may I add:
http://www.statcan.gc.ca/daily-quotidien/080501/dq080501a-eng.htm
So you can bite me you ingnorant slut.
October 14th, 2009 at 3:37 pm
For Canadians getting paid in US dollars, like me, this is bad. Real bad.
October 14th, 2009 at 3:40 pm
I don’t get it. If what you care about is demand, hire people to dig ditches and refill them again. This seems a more efficient means of stimulating demand than selling goods at below price to other countries. It avoids pointless trade wars, it’s more environmentally-friendly (provided you restrict digging tools to hands and shovels) and it’ll improve people’s fitness.
October 14th, 2009 at 4:27 pm
If what you care about is demand, hire people to dig ditches and refill them again.
But that doesn’t result in factories that can later be used to meet domestic demand. It’s very hard to move from a subsistance economy to a consumer economy without first going through the export stage.
October 14th, 2009 at 4:36 pm
The only way to reverse this trend is for the ice crew to embed a Filmore dollar at center ice in GM Place for the 2010 Olympics.
October 14th, 2009 at 4:43 pm
We have a consumer driven economy. Without consumption there is no way out of a recession/Depression. American’s outstanding credit card debt is approaching $1 trillion. Consumer credit, month by month, is plunging at record rates, and consumer spending/retail sales are heading toward a cliff.
American’s have piled up $10 trillion in home mortgage debt. At least 4 million homes will go into foreclosure this year. Only 2 million homes will sold. The are 20 million empty houses in this country. Some bubbles have clearly blown but others -ignored- are about to blow. The housing crisis is real, ongoing, and getting worse, but the commercial real estate crisis is just starting, and could prove equally as devastating as the housing crisis. Empty houses, empty offices, empty strip malls, the country is beginning to empty.
85% of the wealth in this country in owned by the top 15%. We all know this. We also understand the converse, that the bottom 85% own just 15% of the nation’s wealth. But what few understand is that the bottom 85% also owns 85% of the nation’s private debt. The masses are broke.
And jobless. The numbers coming out of the Bureau of Labor Statistics are terrible. Yet there is overwhelming evidence that the Bureau is fudging the numbers to make them look more appealing -to keep the number out of double digits, to keep it at 9.8%, no matter what. The fact is there are millions of lost jobs that are not being accounted for. Not tallied. WE ARE CHOOSING NOT TO SEE CLEARLY.
The United States is in a downward spiral. If our economy is based on consumption and consumers are broke, perpetually underemployed and/or jobless, it is mathematical certainty that there can never again be a robust US economy.
A weak dollar, low interest rates, voodoo monetary policy, etc. is not going to cut it. Not this time. We are in a whole new ballgame. Wealth must be redistributed downward, and soon, or the recession/Depression will be NEVER ENDING. Tax the rich and create jobs with money. Bailout the bottom 85%, not the top 15%. We must begin to do this NOW.
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” -Plutarch c AD100
October 14th, 2009 at 5:44 pm
>Canadians Not Happy About US Dollar Fall
I would be happier if all the books still didn’t have prices saying something along these lines:
$19.95 U.S.
$29.95 Canada
Canada has not seen a 66-cent Loonie since Jean Chretien’s time (i.e., the first George W. Bush term).
SNL’s Phil Hartman was right; Amerida is on the way.
October 14th, 2009 at 5:53 pm
[a cheaper dollar is] in the medium-term interests of just about everyone, since it would set the stage for a rebalanced global economy
Well, not quite. Other currencies are overvalued, other countries are running big and dangerous current account deficits (UK, Australia, New Zealand, Ireland, Spain, and other Eurozone nations). A weak US dollar does nothing to help rebalance the economies of these countries. If China continue to pull the Remnimbi down with the dollar, then a dollar devaluation would make these imbalances even larger.
The major source of imbalance now is China (over the last few years the oil producing nations have also been big savers, but that trend looks to have deteriorated). China must revalue. And for Chinese workers’ sake, Chinese firms must pay higher wages and save less than the 22% of GDP that they are currently saving [1]. China runs a surplus with the EU that is almost as large as it’s surplus with the US [2]. They also run a huge surplus with Australia and New Zealand.
Oh and Matt, you should read Martin Wolf’s book Fixing Global Finance.
[1] Economist.com special report October 3
[2] Rogoff and Obstfeld 2009
October 14th, 2009 at 6:02 pm
Re: a study that shows Canadian economic performance lagging that of the US during the George W. Bush years.
Because the Canadians didn’t have a housing bubble (except locally in Vancouver). Our housing “boom” covered up a lot of sins in our economy and we are now paying the price, which the Canadians largely avoided by keeping their banks on a tight leash and not letting the FIRE sector of their economy get out of control.
Meanwhile if the Canadians want to do something to help their economy vis-a-vis the US they should lobby hard to restore the open border (for citizens only of course) that existed in times past. I suspect that the hassles people have with border crossing now have disrupted a lot of casual trade between the two countries, the kind you get when people who live near the border go over to Canada for a day or two, knowing that they are unlikely to get asked more than a few questions on their way to and from.
October 14th, 2009 at 7:18 pm
Canadians lobbying US policymakers historically have had a low success rate, JonF, and it’s been just as unsuccessful when it comes to the barriers thrown up at the border by US Homeland Security. All Canadian lobbying efforts to date have fallen on deaf ears, economic fallout on the border states notwithstanding.
October 14th, 2009 at 7:19 pm
JMO: I have no idea what a paper on “median earnings” over t he last quarter century is supposed to prove either way. I was talking about wages, household income, and overall economic performance — and the two countries’ relative performances this decade (you keep brining up lazily googled data sets reaching back multiple decades; but such numbers are meaningless, as I am certainly not claiming that Canada lacked economic problems and mismanagement issues in the 70s and 80s; what I’m claiming is that they’ve largely got their act together, and in recent years — say, over the last fifteen or so — have begun to outperform their southern neighbors) — and I claim the Canadians have done better. In the US over the last decade, not only have median wages stagnated, but household income, too, has stagnated, and this, my little right wing shit-eater, is something new, and uniquely horrible, at least since FDR was president. As Ron Brownstein noted recently in The Atlantic:
The fact is, Bush and the Republicans delivered an absolutely abysmal performance in managing the US economy during the 2000s — they did a vastly inferior job compared to Chretien, Martin and Harper. Deal with it.
October 14th, 2009 at 8:18 pm
Jasper,
The latest Canadian government statistics disagree with your pet theories. What can I say – I submitted my proof. Do you have more recent Canadian gov’t statistics to back up your ignorant rantings?
I can only work with the facts that are available – you apparently rely on your own misguided intuition.
Again, you’re an ignorant slut. If you can find some data to support your position – please feel free to include it.
October 14th, 2009 at 8:19 pm
With the Bank of CDN bank rate at 1/4%, what can the BOC do to lower the Canadian dollar?? Canadians are NOT ones to support printing CDN dollars and buying US dollars, QE, but will try their best to talk the CDN dollar down. The CDN dollar is a very thinnly traded currency, and reacts to input flows into the country, which seems to be what is happening, because No one is buying CDN dollars for the interst rates. This trend of shorting the US dollar and buying everthing else, seems to be a growing approach to overcome the shifting world economies.
October 14th, 2009 at 9:07 pm
But that doesn’t result in factories that can later be used to meet domestic demand.
OK, that’s one advantage over digging ditches. But surely there’s a better way for a nation to use its surplus labor than subsidizing American consumers. Say, invest in infrastructure and human capital. The obsession with using exports to fuel demand doesn’t make any sense to me.
October 14th, 2009 at 9:20 pm
But surely there’s a better way for a nation to use its surplus labor than subsidizing American consumers
If you find one I’m sure there is a Noble prize in it for you. To date the Japan, South Korea, China export led growth model is the only one that has been found to work.
What other method would you suggest?
October 14th, 2009 at 9:26 pm
Say, invest in infrastructure and human capital.
What will you use to fund this investment? The per capita GDP of China is 1980 was $191 (vs. 6000 in 2008). They really didn’t have any capital with which to invest when they started 30 years ago.
October 14th, 2009 at 9:36 pm
Exports are great when you get valuable imports or assets in return. If that’s the basis for your growth, no problem. What I’m saying is that it doesn’t really make sense to obsess over exports not in return for valuable imported goods and services but simply to create demand for Keynesian purposes, which is what people are doing when they say they want a weaker currency. It seems to me that subsidizing the export sector is a relatively poor means of Keynesian stimulus, and I can’t see what justifies doing so.
October 14th, 2009 at 9:47 pm
It seems to me that subsidizing the export sector is a relatively poor means of Keynesian stimulus
So, you think China could have done better than increasing the per capita GDP of more than 1 Billion people from $191 to $6000 by “invest in infrastructure and human capital?” That doesn’t seem likely to me.
October 14th, 2009 at 9:50 pm
Realist,
I think we need to differentiate between a country like China that need to grow incomes from $191 to $6000 and countries like Japan. I certainly don’t think it makes sense for Japan to attempt to subsidise exports at the expense of domestic demand when they are already a rich country.
For a country like China, Vietnam, Cambodia etc. I think export led growth is the only method of development that has been shown to work.
October 15th, 2009 at 8:25 am
Chinas curency valuation is not a keynsian stimulus strategy, since they did it for the long run. Dont mix that up. Keynsian stimulus= cycle control, create demand at the downtime government and surpress demand during the boom.