There's Gonna Be Some Pain

[DonAndersen]

Guys/Gals,

 

While we get all excited about how much the CDN buck will buy from the US, did you ever consider that fall of the US buck against other currencies. The US buck is down anywhere from 0>30%. That means that the US consumer is now paying a lot more for everything. Real wages have tumbled, imports are more expensive, basically everything the US buys is now more expensive.

The average citizen is going to get a real kick in the butt. But not only that, the US economy is in for a adjustment.

 

The quote below illustrates how the US consumer effects things. Further, the high cost of energy [ which cuts across all the markets & population] is adding to the grief.

 

According to CNNMoney, consumer spending accounts for some 70 percent of the US gross domestic product. “So the world economy is leveraged to the US consumer. And the US consumer is leveraged to the hilt,” states the web site.

 

The US economy has switched over the past number of years from a manufacturing nation to one based on information and services. Outsourcing of nearly everything means that US cannot recover quickly as they have less to sell. Raw materials such as steel, oil, and on and on are mostly gone in the US. This will mean the reversal of outsourcing will still make the US made products more expensive than in the past.

 

The increase in the CDN $ is not so much a love of the our currency but a stampede from the US $. Holders of US debt [ primarily Chinese] are looking for somewhere to hide. The US national debt is at an all time high as is consumer debt. The US cannot spend it way out.

 

Further, you can't run a war without going to a war footing. All you do is mortgage the war leaving the National Debt ever higher.

 

And lastly, companies that do manufacture in Canada and sell into the US are now making 30% less in the last 6 months. There will be some effect up here - Na - a BIG effect.

 

 

Enjoy the brief ride - it's gonna get ugly out there.

 

catch ya'

 

 

Don

[Inconnu]

It is obviously a double-edged sword for us, particularily those who work in the export/manufacturing business.

Don do you have a feel for how retailers/manufacturers are doing with buying products from either Canadian or U.S. suppliers? One of the fellows at work was saying Dodge has dropped prices on trucks by up to $5000.00, but on a smaller price scale how about other items? I really can't believe the retailers were making that extra $500.00 for a camera bought in Canada, at least some of it must be in the wholesalers prices as well? I think that though retailers bear the brunt of the public pressure to lower prices, they have to send thier customers reactions to their own suppliers who probably purchase from someone in the U.S. taht sets base prices?

The financial relationship we have had with the U.S. is definitely changing and not all for the better....

[Glenbow]

Some things will get worse, likely some things will get better. Another period of adjustment for us eh?

[DonAndersen]

Writer1,

 

As far as the US, items bought months ago @ a higher US buck will see huge price increases as the present inventory works it's way through the system. For example a Korean made car bought into the US $'s months ago @ higher US $'s and now sold into Canada benefits cross-border shoppers 2 ways. First the US dollar was higher when bought and they got more bang for the buck. Now with the situation revered big time, the same car sold into Canada is again discounted. Probably as much as 30>40%. But when the US inventory of the product is gone, the excrement will hit the fan. Not so much in Canada, but God help the US consumer.

 

Similarly in Canada, prices are changing daily on a host of things as inventory or public pressure is exerted. Some of our suppliers are changing the prices daily, others as yet have not. Makes life real interesting.

 

What scares the crap outta me is this becomes a run on US currency. EURO's maybe the only "safe" currency. The only thing that might hold that off is military and oil sales/purchases. The US does a lot of business in these areas. Plus the US have few friends out there. Don't think that a lot of the world would cry big tears to see them get theirs. Seems like most folks do like to take a poke now and then @ the BIG GUYS. Of course, you gotta do it under cover of darkness. Not fair - but that is the way it is.

 

catch ya'

 

 

Don

[Inconnu]

I've heard rumours of a North American version of the Euro.....just lunchroom talk though. Thanks for your answer Don....Kerry

[admin]

I think you are referencing the "Amero". Someone had sent a video to me a while back that was made to scare, but I think it's mostly a hoax. Here is one of the youtube videos. People talking about having "V-Chips" implnated.....

 

Click here if the movie does not play.

 

There is a company out there who produces novelty Amero coins.

 

http://www.snopes.com/politics/business/amero.asp

 

It's insane just how fast things are chaning. It's scary really. I never thought I would see the Canadian dollar sitting at 1.10US.

[H2O]

Hopefully the upward trend in the Canadian vs US dollar stays for a little longer, at least until the price of crude oil stabilizes. For every one-cent change in the value of the Canadian dollar versus the US dollar my company operating expenses decrease an approximate CAD $4 million per annum.

[DonAndersen]

H2O,

 

You point illustrates exactly what does happen. Gasoline prices are holding due to the fact that oil is sold in US $'s. If the CDN $ went to $065 vs 1 again, expect a 40% increase in gas.

 

 

Don

[H2O]

You bet Don, but in your expectations don't forget to to include the 1 % drop in the crack spread in 3rd quarter 2007 and 14 % drop since 2006. (the difference between the price of crude oil and refined products such as gasoline and jet fuel).

[Hawgstoppah]

Don

 

I deliver houses (log homes) . Most of our loads go south and it's been really, really quiet on the housing front lately. And on a sidenote, when delivering into the US we get paid in US dollars, which USED to be a huge plus. Now were taking it on the chin. Add fuel prices to that as well, and you can see where this is headed. No load rate increases but a 25-35% increase in running costs... ain't gonna last too long out here!

[PlayDoh]

I think it just the motions of the global economy being based in China soon. The US has lost its place at the top, and we will need to compare the loonie to the yuan to get a sense of Canadas economic stance.

The US trade deficit rose 6.5% last year to hit a new record high of $763.6bn

Exports of goods and services rose 12.8% to $1.44 trillion

Imports gained 10.5% to $2.2 trillion

BBC 13/2 2007

 

Full text

 

Comment by Rolf Englund:

The problem is that the deficit is so large that the deficit increases even though exports rise considerably faster than imports.

Because the U.S. imports about 50 percent more goods and services than it sells abroad, exports have to grow about twice as fast just to stabilize the deficit.

 

By Mark Trumbull

America's trade deficit has been setting records with such frequency that it seems almost tiresome to hear it again: Another month, another $68.5 billion.

 

But the gap between what America imports and what it exports is growing so rapidly and relentlessly that it is provoking new concern about how long the world's largest economy can play borrower and consumer to the world.

 

The issue may take on new urgency in a congressional election year, stoked by news Thursday that the trade deficit hit a new high in January. The monthly record is attributed to a surge in goods from fast-rising China, a tide of imports affecting the beleaguered US auto industry, and an exodus of dollars going to pay for OPEC oil. The huge trade imbalance was top of mind with US lawmakers recently, when they quizzed incoming Federal Reserve Chairman Ben Bernanke about their economic concerns.

 

Though America's trade deficit has been growing by about $100 billion annually - hitting $726 billion last year - that doesn't necessarily mean a sober day of reckoning is drawing near.

 

"It's clear that the US trade deficit cannot go on galloping ahead $100 billion a year indefinitely," says Daniel Griswold, a trade expert at the libertarian Cato Institute in Washington. But "it's more likely the adjustments will be incremental rather than jarring."

 

Even if a soft landing were to eventually occur, the trade deficit would be likely to remain an important issue.

 

The change, when it comes, could bring a weaker dollar and higher interest rates for US borrowers as foreign willingness to lend dollars to the US ebbs. Moreover, the longer it takes for "global imbalances" to begin a correction, the tougher the adjustment could be.

 

Each year of gargantuan deficits with trade partners represents another year of erosion for America's economy, because it means US consumers are buying cheaper goods from abroad at the expense of jobs at home, say those who worry about the size of America's trade deficit.

 

"We're hollowing the economy out," says Charles McMillion, an economist who follows trade patterns at MBG Information Services in Washington. "It's having enormous negative consequences for families and individuals." When IBM sold its personal-computer manufacturing business to China's Lenovo, he notes, that $1.7 billion deal covered only about one day's worth of the deficit.

 

For now, the economic worries are focused on China - though they hardly end there.

 

At $201 billion last year, China's trade surplus in goods with the US was by far the largest of any nation. That figure represents a 24 percent rise in just 12 months, fueled by surging exports of everything from textiles to electronics.

 

Yet virtually across the board, from Europe to Latin America to Africa, the US trade imbalance rose at double-digit rates between 2004 and the end of 2005. It's difficult to find nations - Australia and Belgium are two - that buy more goods from America than they sell.

 

Still, China is significant for both its scale and the warp speed of its economic rise - and because many analysts see its currency as artificially low.

 

The dreams of US manufacturers and labor unions for a higher yuan, however, are difficult for China to fulfill. While some currency analysts expect Beijing will allow the yuan to strengthen, a shift that is too sudden or too dramatic - producing a surge of imports into China - could spark social unrest among Chinese farmers and workers whose livelihoods would be negatively affected.

 

In many ways, China and the US are reverse images of an imbalanced global economy. The US is the great consumer and borrower, and other nations, economists say, should devote more of their national income to consumer spending.

 

The US trade deficit "does reflect continuing weakness abroad, especially in Europe and Japan, where consumers are not as confident," says Mr. Griswold.

 

Of course, concerns about the size of US trade deficits have been around for two decades. Some economists say the imbalance could persist for some time, given America's wealth and the world's penchant to see the US as a haven for their dollars.

 

"We are so rich as a country," says Robert Lawrence, a Harvard University economist. "We're borrowing, we're running down our assets, but we're very wealthy." He wouldn't be surprised, though, to see the gap shrink eventually.

 

Other nations may at some point decide they don't want to invest so heavily in US dollar-denominated assets, from Treasury bonds to businesses. That could weaken the exchange rate of the dollar, which in turn would help US exporters. And America may have to pay higher rates of interest to lure foreign financing, such as borrowing to cover growing federal budget deficits.

Mark Trumbull Rolf Englund

 

Welcome to the Walmart world 8-)

[Guest bigbadbrent]

something walmart this way comes

[Castuserraticus]

http://www.2000wave.com/gateway.asp

For others interested in global economic trends, the above links to John Mauldin's weekly comments. He's one of the most accurate prognosticators of global economic trends (US centric) and scans the world for info each week. There's a tremendous amount of info that supports and backgrounds Don's comments in the archives. John also distributes commentary by other writers. There's some interesting guest commentary a few weeks back arguing convincingly that the present US condition is actually good and sustainable (Ken Fisher I think).

 

Canada's present period of prosperity arose from the weak $CDN. The US will hurt over the near term because inflation is much more pronounced where your local currency is falling. China's shift of some of their reserves out of the $US hit the news recently but was noted by Mauldin and others months ago.

 

For some interesting commentary and technical analaysis check out the founders commentary at www.goldmoney.com. The downward trend of the $US is shown well there. I won a nice supper about 2 years ago from a business associate who bet me the $CDN would fall from around $0.85.

 

I wish the news would stop headlining the "record oil prices" and other commodity prices. When adjusted for currency, the commodity prices have been stable for quite a while. Just note how gasoline had been around $1 for about 2 years.

 

The saviour of the world economy is the growth of middle class expectations in the BRIC countries (Brazil, Russia, India, China). The potential is for a global boom that has no precedence due to the areal and numeric scope.

[Guest Sundancefisher]

Hopefully the upward trend in the Canadian vs US dollar stays for a little longer, at least until the price of crude oil stabilizes. For every one-cent change in the value of the Canadian dollar versus the US dollar my company operating expenses decrease an approximate CAD $4 million per annum.

 

The rising dollar has killed any benefit rising oil prices have had for oil companies as well. Back when companies were doing better financially was when the dollar was worth .7 of a greenback.

 

If the dollar went back to even .85 of a greenback the oil industry has a chance to comeback.

 

Now on the more humorous side of things...when ever I see American change given to me by a business I tell them I can not accept foreign currency as change...LOL...just like places in the states have done when accidentially given a Canadian quarter or such :-)

[albannachxcuileag]

THis is todays rate of exchange between the Euro and USD

 

Friday, November 9, 2007

 

1 US Dollar = 0.68233 Euro

 

1 Euro (EUR) = 1.46556 US Dollar (USD)

 

It used to be the other way around a few years back and makes for us a good time to either buy from the US or to go there as our spending power has risen.

 

and as for the GBP against the USD, well it means less Americans holidaying in the UK!

 

Friday, November 9, 2007

 

1 US Dollar = 0.47537 British Pound

 

1 British Pound (GBP) = 2.10364 US Dollar (USD)