Thursday, September 20, 2007
Well, as I wrote back in 2004 in the post My Prediction, the Canadian dollar has reached parity with the US dollar as of 2:00pm Atlantic time today.
This makes me think I should go buy some shoes in the J C Penny in New Hampshire that is itself bigger than the Charlottetown Mall. I imagine the parking lots near the Canadian border will have more than the usual sight of discarded Canadians' shoes as people leave their old ones right in the lot and put on the new ones to get by customs and save a couple of bucks in duty.
I'm starting to think that the credit crisis, US current accounts deficits, the strong Euro are all forming a perfect storm to deflate the US dollar. Unfortunately the Canadian dollar only looks strong when you compare it to the US dollar, but the Euro and the Yen have been growing steadily against both, only slightly less dramatically against the Canadian dollar. On world markets I suspect that most currency traders still view the two currencies as good or poor buys together, buying both or selling both at once based on what's happening in the US economy. Normally this isn't a bad idea, since our trade relationship is so tight, but I really do see the credit crisis in the US not repeating here. Sure Toronto and Vancouver have ridiculous real estate prices, but I think this reflects genuine demand, rather than inflated prices based on over-eager lending to people who turn around and spend more money than they have competing for every available home up for sale in nearly every major market.
I'm not too worried about this being too harmful to Canada's economy. What will hurt our exporters more than the dollar is simply the dismal economy down South, if people aren't building new houses because they can't get loans, it won't matter how cheap our dollar is if no one wants to by any lumber at all. But at least a strong Canadian dollar will help our ability to trade with the rest of the world, increasing our economic footprint and allowing us to engage on hopefully what will become a more open basis with Europe.
I hope Stephen Harper continues to pay down our debt and doesn't bring in any drastic tax cuts. I wonder if all the staunch supporters of Bush and his tax cuts for the wealthy realize that while they just had their taxes cut by 40%, the value of the money they now have is worth half what it was before Bush came along. But at least they still get to stick it to poor people.