Sobering second thoughts on "powerhouse" loonie
Streaker @ Tue Oct 09, 2007 9:32 pm
$1:
Can you say recession?
Good news: the loonie is soaring higher. Bad news: it's because the U.S. is in crisis
COLIN CAMPBELL AND JASON KIRBY | October 8, 2007 |
From the moment the United States government came into being in 1789, it was in the red. Saddled with a US$78-million debt from the revolutionary war, a fledgling Congress made it a priority to get out of hock, eventually setting limits on how much money the country could borrow. So much for that. Last week, U.S. Treasury Secretary Henry Paulson sent a stark message to modern-day legislators: on Oct. 1, America's IOUs will surpass the current debt cap of US$8.9 trillion. Unless Congress jacks up the limit yet again and piles on even more debt, the government of the world's largest economy will cease to function.
It's the kind of dire situation you would think might grab headlines, but it has raised barely a ripple. In spendthrift America, this is just par for the course. Since the Bush administration took office in 2000, America's national debt has ballooned by more than 50 per cent. Congress has already hiked its limit on how much the U.S. can borrow four times in the last five years. Meanwhile, American consumers, spurred on by low interest rates after 2001, racked up huge debt loads of their own. America's appetite for borrowed money seemed limitless.
Not anymore. As global financial markets seize up, and lenders come calling, alarm bells have begun to ring. Observers are talking seriously about the threat of a punishing recession. America's addiction to cheap and easy money has put the country's economy, not to mention the world's, on shaky ground. "What we've done as a society is borrowed a tremendous amount of money," says Peter Schiff, president of Euro Pacific Capital in Darien, Conn., nicknamed "Dr. Doom" for his dour outlook. "Now the bills are coming due and we don't have any money to pay it back." Surveying the threat of a crumbling housing market and rising unemployment, Schiff is brutally blunt. "We're screwed," he says. "It's not just going to be a mild recession. It'll be the worst one we've ever had."
The sinking reality of America's dire financial state has sparked a simmering panic in financial markets over the past several weeks, and that has been reflected in the plunging value of the U.S. dollar against virtually all world currencies, including Canada's.
As the Canadian dollar crested above the value of the greenback for the first time in three decades last week, shoppers celebrated by beating a path to cross-border outlet malls. But for a country whose economy is inextricably linked to the financial health of U.S. consumers, the rise above parity is anything but good news. The loonie's rise is not so much a resounding statement of confidence in the Canadian economy, but a reflection of absolute panic over the financial mess south of the border. Yes, Canada's abundance of minerals, oil and gas provides some protection against economic turmoil. But any claim that Canada can glide easily through a major U.S. recession, especially if it spreads to other parts of the globe, is seriously off base. Analysts are just beginning to come to grips with what the U.S. reckoning means for us.
Good news: the loonie is soaring higher. Bad news: it's because the U.S. is in crisis
COLIN CAMPBELL AND JASON KIRBY | October 8, 2007 |
From the moment the United States government came into being in 1789, it was in the red. Saddled with a US$78-million debt from the revolutionary war, a fledgling Congress made it a priority to get out of hock, eventually setting limits on how much money the country could borrow. So much for that. Last week, U.S. Treasury Secretary Henry Paulson sent a stark message to modern-day legislators: on Oct. 1, America's IOUs will surpass the current debt cap of US$8.9 trillion. Unless Congress jacks up the limit yet again and piles on even more debt, the government of the world's largest economy will cease to function.
It's the kind of dire situation you would think might grab headlines, but it has raised barely a ripple. In spendthrift America, this is just par for the course. Since the Bush administration took office in 2000, America's national debt has ballooned by more than 50 per cent. Congress has already hiked its limit on how much the U.S. can borrow four times in the last five years. Meanwhile, American consumers, spurred on by low interest rates after 2001, racked up huge debt loads of their own. America's appetite for borrowed money seemed limitless.
Not anymore. As global financial markets seize up, and lenders come calling, alarm bells have begun to ring. Observers are talking seriously about the threat of a punishing recession. America's addiction to cheap and easy money has put the country's economy, not to mention the world's, on shaky ground. "What we've done as a society is borrowed a tremendous amount of money," says Peter Schiff, president of Euro Pacific Capital in Darien, Conn., nicknamed "Dr. Doom" for his dour outlook. "Now the bills are coming due and we don't have any money to pay it back." Surveying the threat of a crumbling housing market and rising unemployment, Schiff is brutally blunt. "We're screwed," he says. "It's not just going to be a mild recession. It'll be the worst one we've ever had."
The sinking reality of America's dire financial state has sparked a simmering panic in financial markets over the past several weeks, and that has been reflected in the plunging value of the U.S. dollar against virtually all world currencies, including Canada's.
As the Canadian dollar crested above the value of the greenback for the first time in three decades last week, shoppers celebrated by beating a path to cross-border outlet malls. But for a country whose economy is inextricably linked to the financial health of U.S. consumers, the rise above parity is anything but good news. The loonie's rise is not so much a resounding statement of confidence in the Canadian economy, but a reflection of absolute panic over the financial mess south of the border. Yes, Canada's abundance of minerals, oil and gas provides some protection against economic turmoil. But any claim that Canada can glide easily through a major U.S. recession, especially if it spreads to other parts of the globe, is seriously off base. Analysts are just beginning to come to grips with what the U.S. reckoning means for us.
Full Maclean's article can be read here.
Maybe we shouldn't be so smug about the newfound strength of our dollar vis-a-vis the US greenback?...
Toro @ Sun Oct 21, 2007 2:21 pm
At some point, the loonie will get too high.
We may be nearing that point now.
Scape @ Sun Oct 21, 2007 2:41 pm
Yeah, like the Willie E falling off the cliff. We are in that short uncomfortable moment of equilibrium just before he plunges to the canyon floor...
Scape @ Sun Oct 21, 2007 2:53 pm
Toro Toro:
At some point, the loonie will get too high.
We may be nearing that point now.
We may be nearing that point now.
$1:
The economy here, boosted by high commodity and oil prices, has proven remarkably resilient in the face of the subprime mortgage troubles. News that the Canadian dollar had reached parity with the U.S. dollar last week was heralded as yet another sign of the faith being placed in the Canadian economy. That has led many to believe that Canada can dodge the worst of any impending downturn. "The best news in Canada is that we have strong economic fundamentals," said Finance Minister Jim Flaherty last week. "The government is in a position of strength." Schiff, the U.S. financial adviser who is so down on America's prospects, would agree. He predicts the loonie will soar as high as US$2 within the next two years on continued U.S. weakness, combined with the fact that Canada is a net exporter of energy and other raw materials.
Toro @ Sun Oct 21, 2007 6:41 pm
Scape Scape:
Toro Toro:
At some point, the loonie will get too high.
We may be nearing that point now.
We may be nearing that point now.
$1:
The economy here, boosted by high commodity and oil prices, has proven remarkably resilient in the face of the subprime mortgage troubles. News that the Canadian dollar had reached parity with the U.S. dollar last week was heralded as yet another sign of the faith being placed in the Canadian economy. That has led many to believe that Canada can dodge the worst of any impending downturn. "The best news in Canada is that we have strong economic fundamentals," said Finance Minister Jim Flaherty last week. "The government is in a position of strength." Schiff, the U.S. financial adviser who is so down on America's prospects, would agree. He predicts the loonie will soar as high as US$2 within the next two years on continued U.S. weakness, combined with the fact that Canada is a net exporter of energy and other raw materials.
That sounds like euphoric hysteria to me.
When I start hearing such talk, I want to take the other side of the trade.
Canadian_Mind @ Sun Oct 21, 2007 7:05 pm
again, all the more reason to try to diversify our trade. I read elsewhere Russia may be buying our grains in the future, which would certainly help in the prarie regions of our country.