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Unfortunate but true, the United States of America has gotten out of control as a world power. Once a prosperous and free country, I am saddened to see the state that the United States is in today. While I have utmost pity for the citizens of that country, it has all the earmarks of a superpower falling from grace like the Soviet Union in the later 1980s. Indisputable is the incredible sum of debt of the US owed not only to foreigners, but to its own citizenry in the form of impossible to pay social security promises and other social welfare benefits.

The US economy has been in a sorry state for years, but right now the implosion of all the misallocated money created during credit expansion of the early-mid 2000s is beginning to show itself in the form of subprime mortgages. As layoffs continue as companies struggle to retain profit margins, we can be sure to expect this 'credit crunch' to spread to consumer debt, in the form of credit card defaults. The obvious trade deficit is a problem as well, around 700 billion dollars per year. Lastly, the US dollar is depreciating at an alarming rate, losing almost 10% of its value this year alone, as we saw when the Canadian dollar hit $0.85 US this winter.

What does it mean when a government gets into debt? Debt is a promise to pay someone back in the future. Since a government does not actually produce anything, only redistribute wealth, the debt is levied onto the people of that country, the workers that produce goods and services, to pay it back. Currently, there is a debt of $90,000 for every man, woman, and child in the United States.

One attractive option to make paying debt off easier is to inflate the currency so that the huge sum of money to be paid off shrinks in terms of absolute value. This is the route that the US has taken. Year over year money supply growth has topped 15% this year and is reflected in the price of many dollar denominated goods such as gold, silver, and oil. Since the US dollar is the world reserve currency however, this makes the situation a lot more complicated. When the US decides to create new money, it really has to work the printing presses because of the sheer volume of US dollars in circulation abroad. Printing US dollars is the equivalent of pissing into a swimming pool, but the US central bank seems to be able to crank out the necessary volume of money. Of course inflation hurts the average American, but it seems the government cares less about that and more about financing their unsustainable balance sheet. The largest owner of US dollar denominated debt is the People's Republic of China, and when the person that owes you money has the ability to print the money, it is best to cash in your chips as soon as possible. China has its US reserves held in the form of treasury bills, and should it decide to cash it out and use those dollars to buy up assets in the US, it is in for some rough times ahead. Mind you, China is a country which its citizenry saves 35% of their income on average, the US citizen saves -2% of their income (they take on debt).

If I have sufficiently made the case that the US is headed for financial ruin, I would hope to convince you that it is in Canada's best interest to 'diversify' its trade to other areas, specifically China, Japan, the European Union, Russia, India and South America. Secondly, we should be skeptical of any further economic integration with the US in the form of free trade agreements, especially ones that include access to our natural resources. Thirdly, we should increase immigration allowances for highly skilled, educated Americans seeking a better life in Canada.

Canada does suffer from a contracting trade surplus, but luckily it is still in the positive of +50 billion in fiscal year 2007. Exports to the US account for 80% of our export market, and imports from the US account for 45% of our import market. I'm glad to hear that the Conservative government is taking our $460 billion dollar debt and slowly repaying it, certainly a step in the right direction. However their close alignment with the US in the fields of foreign and economic policy worries me. Lastly, the Bank of Canada is cutting our interest rates (creating more money) in the hopes that we will be able to ride out the US-induced economic recession. I would explain why this is an exercise in futility, but if you know any economics you probably know why already.

Should Canada further ally themselves with the US, or is it time to find a new partner? Perhaps one that will be able to pay us in something worth more than the paper its printed on.

Sources:

http://quotes.ino.com/chart/?s=NYBOT_DX&v=d12
http://www.statscanada.ca/menu-en.htm

   

   

   

Is there another country we're geographically tied to with 4,000+ miles of border and has a customer base that it 10 times ours we can trade with? All sounds great till you look around at who else you can deal with.

   

   

There you go you just solved the whole problem.

   

Have you looked at a map and seen where China is?? Do you understand that they don't want buy our shit or anybody else's? You'd also endorse trade with a country that violates human rights as well?

   

China buys a lot of our shit, and continues to buy more of our shit, if you read the link I posted. China is across the Pacific ocean, obviously - this does not pose much difficulty to trade.

Whether or not China violates human rights is beside the point, they are poised to become the world's largest economy within 10-15 years, and by not trading with them we will only get left behind.

   

Yes transportation costs are never an issue in trade at all.
They want our natural recourses not our finished goods, so being left behind doesn't even make sense to the argument. You think if we start making little plastic toys that they'd start buying ours instead of their own at 1/100th the price?

Oh?...so you'd like to promote the abuse of human rights by supporting their economy. Very noble of you...

   

You should look into a career in trade consulting.

   

Canada wouldn't be doing as well as it is today if it wern't for the USA. People should keep that in mind. I agree it's important to diversify to some degree though. We should be cautious not to burn any bridges because that always can come back to bite us in the future.

   

JustKate

Actually american manufacturing methods and engineering have made the world the way it is. Although the Brits invented the industrial revolution it was Colt and Pratt & Whitney who made it work. It wasn't so much Colt's pistol but how it was made. Interchangeability of parts was the basis for Henry Ford's industry.

   

x2. Standardized manufacture. North America showd the world how to make things.

This is ironic that the same folks who want us to distance ourselves from our largest trading partner, put down the US for it's supposed abuses of power in the 3rd world.
They suggest trading with China even though Darfur, North Korea and Burma are all direct products of China's foreign policy, and world leaders in the manufacture of hell on earth.
The morality of the left is like nailing jelly to a tree.

   

Good points!

   

Are people actually considering in a Chinese investment to secure our futures? Holy shit, we have the future leaders of Canada.."Lets go back to selling timber and beaver pelts and be a colonial nation!!!"

American money is still worth plenty, since it, unlike China, actually values its currency on the world market, and not try to create these unfair policies to over benefit

   

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