Canadian Dollar at Parity with the US Dollar

Michael Bluth · November 4, 2007

It can last as long as we wish it to last.

The US doesn't have as much control over the value of their dollar as you appear to think.

The downward spiral hasn't just been because of domestic American influences.

The USD is down against the Yen, the Pound and the Euro.

The Euro is increasingly becoming the safe currency. The next president will have to deal with the huge budget deficit GW is sure to leave.

Until the domestic fiscal situation is controlled the USD will continue to stay weak.

Edited November 4, 2007 by Michael Bluth

bush_cheney2004 · November 4, 2007

The US doesn't have as much control over the value of their dollar as you appear to think.
The downward spiral hasn't just been because of domestic American influences.

The USD is down against the Yen, the Pound and the Euro.

The Euro is increasingly becoming the safe currency. The next president will have to deal with the huge budget deficit GW is sure to leave.

Until the domestic fiscal situation is controlled the USD will continue to stay weak.

That's what they said 20 years ago after Reaganomics and record spending as well. Japan proceeded to fall on its ass and has yet to recover. France and Germany had record unemployment. The ruble just flat-out collapsed. China kept buying American paper and refuses to float. The poor battered and bruised American dollar is still being chased by other pretenders.

The Americans can "fix" domestic fiscal policy if they wish...which is exactly what I said. President Bush is ahead of schedule on deficit reduction plans.

Higgly · November 4, 2007

That's what they said 20 years ago after Reaganomics and record spending as well. Japan proceeded to fall on its ass and has yet to recover. France and Germany had record unemployment. The ruble just flat-out collapsed. China kept buying American paper and refuses to float. The poor battered and bruised American dollar is still being chased by other pretenders.
The Americans can "fix" domestic fiscal policy if they wish...which is exactly what I said. President Bush is ahead of schedule on deficit reduction plans.

What was the value of the US dollar 20 years ago? Bush ahead of schedule? The guy is behind the eight ball.

What is happening now is a paradigm shift. There is an awful lot of US debt in foreign hands, especially in the hands of the Chinese, the Japanese, and the Arabs.

November 4, 2007

The USD is down against the Yen, the Pound and the Euro.
The Euro is increasingly becoming the safe currency.

The Euro only made it's debut a few years ago, so it has no history at all-- and therefore there's nothing to base its being "the safe currency" on. It's doing well right now, but the American dollar is in a slump, so there's really no way of knowing how it will fare in the long run. As you said, the USD is down against the pound and the yen too, so that says more about the USD than it does about the Euro. If the U.S. were only losing against the Euro, then it would speak for the Euro's strength.

geoffrey · November 4, 2007

The Euro only made it's debut a few years ago, so it has no history at all-- and therefore there's nothing to base its being "the safe currency" on.

The Euro is safe in the same ways that a mutual fund is safer than a stock (ugly analogy). The Euro is representive of the economic policies of many nations with very different economies and industries. It's a bigger basket of goods if you wish.

Poor economic policies in the US can negatively impact the greenback, but poor economic policies in one Euro country won't have as large an effect. Diversified political risk.

Remember as well that American exporters are benefiting like our's once did. This is generally viewed as a positive.

Michael Bluth · November 4, 2007

The Euro only made it's debut a few years ago, so it has no history at all-- and therefore there's nothing to base its being "the safe currency" on. It's doing well right now, but the American dollar is in a slump, so there's really no way of knowing how it will fare in the long run. As you said, the USD is down against the pound and the yen too, so that says more about the USD than it does about the Euro. If the U.S. were only losing against the Euro, then it would speak for the Euro's strength.

Fair enough.

The Chinese and Japanese central banks have strengthened their holdings in Euro while reducing them in USD.

Convince yourself what you will, but the USD is losing it's place as the world's currency.

bush_cheney2004 · November 4, 2007

Fair enough.
The Chinese and Japanese central banks have strengthened their holdings in Euro while reducing them in USD.

Convince yourself what you will, but the USD is losing it's place as the world's currency.

I will believe that the day I stop hearing (and reading) over and over about the value of the Canadian dollar "US". I can imagine that after so very many years of this, a change would be welcomed.

geoffrey · November 4, 2007

Convince yourself what you will, but the USD is losing it's place as the world's currency.

Yes and no Michael.

One of the big developments was Europe trading with OPEC in Euro's rather than Greenbacks. Unfortunately that play is currently working against them, but it was a big move none the less.

Never the less, it may be decades before we see the quoted price of crude in Euros or anything like that. The US is still a growing force, where as many European economies are stagnant or declining. The innovators of Europe (Ireland, Austria) aren't exactly large enough to have a major effect on the overall picture. Lacklustre performance in France is a big drag, and Germany/Italy haven't been a real force in some time. The big economies of Eurozone aren't that hot.

bush_cheney2004 · November 4, 2007

What was the value of the US dollar 20 years ago? Bush ahead of schedule? The guy is behind the eight ball.
What is happening now is a paradigm shift. There is an awful lot of US debt in foreign hands, especially in the hands of the Chinese, the Japanese, and the Arabs.

Using such logic, the Canadian loonie and economy should have self destructed long ago. It didn't.

geoffrey · November 4, 2007

The low dollar is surely an intentional policy to deal with trade deficits. It shows that a large trade deficit can be maintained, but it may eventually impact consumer goods and how great of a life Americans can have,

bush_cheney2004 · November 4, 2007

The low dollar is surely an intentional policy to deal with trade deficits. It shows that a large trade deficit can be maintained, but it may eventually impact consumer goods and how great of a life Americans can have,

Maybe, but we have learned otherwise. I can't remember a time in recent memory when the USA did not have a large trade deficit, even when Boeing sends airliners to China. (Not so many Chinese airliners heading to the USA.)

M.Dancer · November 4, 2007

The low dollar is surely an intentional policy to deal with trade deficits. It shows that a large trade deficit can be maintained, but it may eventually impact consumer goods and how great of a life Americans can have,

Gov'ts can do bugger all to affect the value of the currency. It's a myth that they can pull levers and see the dollar rise or fall. They do have power to raise and lower interest rates but that might act as a govenor and not a throttle....

In the end it;s the free market that determines the value, the gov't can only look on the sidelines.

old_bold&cold · November 4, 2007

The USD has many thing going against it right now and yes it has very little control over what its value is seen in others eyes. If China and Japan wanted they could convert their USD holdings to euros, and decimate the USD in doing so. But that would not be in their best interests now. While they are doing just that behind the scenes, it is only hedging their best for the time being. The world still uses the USD as a bench mark, but that does not mean it has to be the highest valued of all currencies.

Most Canadians can see that the USD has taken a hit and CDN is up just by looking at the price of oil in USD. it has gone up by about 20% and yet our gas prices have remain stable for now. That is because we now have a higher dollar so while that oil is USD is up it really is about the same in CDN. That will change soon though. I think the USD will be going down about .10 more on its own and the CDN will go up approx .05 on its own, which means that by this time next year, we will see about $1.20cdn. Now before all you accountant type start saying no way, I remind you that with USA election and it obviuos factors the USD will hit its worst case example around that time. All things will change after the elections next year.

bush_cheney2004 · November 4, 2007

Gov'ts can do bugger all to affect the value of the currency. It's a myth that they can pull levers and see the dollar rise or fall. They do have power to raise and lower interest rates but that might act as a govenor and not a throttle....
In the end it;s the free market that determines the value, the gov't can only look on the sidelines.

This is false....the Americans have purposely used fiscal and monetary policy to do exactly that. Not to 100% effect, but definitely an influence. One can't claim that deficit spending impacts dollar valuations on one hand, and then claim that government "can do bugger".

Higgly · November 4, 2007

This is false....the Americans have purposely used fiscal and monetary policy to do exactly that. Not to 100% effect, but definitely an influence. One can't claim that deficit spending impacts dollar valuations on one hand, and then claim that government "can do bugger".

The only lever they have is the lending rate. Right now their policy is to use that lever to keep inflation down. The value of the US dollar follows from that process. The only way the Fed can increase the value of the US dollar using that lever is to dramatically jack up interest rates. If they do that, they kill the economy.

There is not a lot the US can do about the value of the dollar.

Wilber · November 4, 2007

Using such logic, the Canadian loonie and economy should have self destructed long ago. It didn't.

We were flirting with bankruptcy at one point but now we are headed in opposite directions.

Link

The percentage of US national debt held by foreigners is over 50%. Canada's is around 25% and declining. We found that a declining value in our currency combined with an increasing dependence on foreign debt is a double whammy. You have to make it worthwhile for foreigners to buy debt in your currency which means you have to offer a higher return to compensate for that currency's instability which in turn drives up borrowing costs for you own citizens further stifling your own economy. The only real answer is to stop the increase in your foreign held debt.

bush_cheney2004 · November 4, 2007

We were flirting with bankruptcy at one point but now we are headed in opposite directions.

So the Americans are surely "doomed" but Canada wasn't ? The Americans pumped billions into Canada.

Wilber · November 4, 2007

So the Americans are surely "doomed" but Canada wasn't ? The Americans pumped billions into Canada.

Of course you're not doomed, you just can't continue to depend on foreign creditors to finance your government indefinitely. That's what we were forced to learn back in the late eighties and early nineties. It wasn't brilliance on our part, we were reaching a point where we no longer had a choice.

bush_cheney2004 · November 4, 2007

Of course you're not doomed, you just can't continue to depend on foreign creditors to finance your government indefinitely. That's what we were forced to learn back in the late eighties and early nineties. It wasn't brilliance on our part, we were reaching a point where we no longer had a choice.

Correct, but we can depend on maintining conditions that invite foreign financing for a period less than indefinitely. The Americans have something that Canada has never had...more choices.

Wilber · November 4, 2007

Correct, but we can depend on maintining conditions that invite foreign financing for a period less than indefinitely. The Americans have something that Canada has never had...more choices.

If your currency is declining, why would I buy debt in US dollars? Sure, you are low risk for repayment but I'll have that in Euros please or no deal. That's one choice you lose. We know from experience.

bush_cheney2004 · November 4, 2007

If your currency is declining, why would I buy debt in US dollars? Sure, you are low risk for repayment but I'll have that in Euros please or no deal. That's one choice you lose. We know from experience.

You have answered your own question. China and Japan are still buying, because the golden goose must keep laying eggs.

Higgly · November 4, 2007

You have answered your own question. China and Japan are still buying, because the golden goose must keep laying eggs.

If they were still buying, the dollar wouldn't be sinking. What is it exactly is it that you think determines the value of the US dollar? This is why raising interest rates would also raise the value of the dollar.

It's not brain surgery.

Edited November 4, 2007 by Higgly

bush_cheney2004 · November 4, 2007

If they were still buying, the dollar wouldn't be sinking.

Nonsense...please get an economic clue.

Higgly · November 4, 2007

Nonsense...please get an economic clue.

OK. Have it your way. :blink:

Wilber · November 4, 2007

You have answered your own question. China and Japan are still buying, because the golden goose must keep laying eggs.

For now, but you assume you will always remain the golden goose. If you don't stop borrowing from them, eventually they will own the goose anyway and the more of you they own, the more vulnerable you become. Right now it is definitely in their best interest to keep you going but maybe one day they will decide it isn't. Who knows.

The bottom line is, the more you rely on foreign creditors the less control you have over your own destiny. Something that every third world country knows.