Requesting Economics Lesson

[Björn Toulouse]

I have 2 friends, a Frenchman who has relocated to Québec, and an expatriate Texan who now resides in France. Both are gloating over the present exchange rate of the USD v the Canadian Dollar. They are going woo over what they consider to be an apocalyptic sign of the impending demise of the USD/USA. Their opinions are incidental to my post but they are responsible for stimulating my interest in this development.

I know nothing about economics. OK, I am a senior citizen (by some measurements) of the USA, and I did have a few economics courses in college decades ago so I am sure that I do know "something", but for the purposes of this post, it is easier to present myself as a blank page on the subject.

Currently the Canadian dollar is worth more than the USD. This was also the case in the late 1950's and again in the mid 1970's. What I have read today is that the border cities of the USA have been experiencing an influx of Canadian visitors who have come to partake of the goods and services in these "cheap" times.

http://www.buffalonews.com/cityregion/ontarioniagara/story/174364.html

The questions that pop up immediately are these:

1. Is this not an economic boon for those border USA cities providing those goods and services because of sudden additional customers? What is the impact?

2. Does this mean that the border Canadian cities are experiencing a corresponding decline in customer demand? What is the impact?

3. What are other advantages, if any, of the present exchange rate to the USA? What are the disadvantages?

4. Similarly, what are other advantages to Canada, and what are the disadvantages, if any?

5. What is the overall "impact" of the Canadian dollar being stronger than the USD? I was alive when it was stronger both times before and I never even realized it. Is there any difference today?

One "financial forecast center" I have accessed is predicting the USD will rise again above the Canadian dollar even though their predictions for September of this year were obviously off. Any comment on this?


http://www.neatideas.com/cdollar.htm

[Gord_in_Toronto]

I have 2 friends, a Frenchman who has relocated to Québec, and an expatriate Texan who now resides in France. Both are gloating over the present exchange rate of the USD v the Canadian Dollar. They are going woo over what they consider to be an apocalyptic sign of the impending demise of the USD/USA. Their opinions are incidental to my post but they are responsible for stimulating my interest in this development.

If they had any sense they would not cheer for the demise of the USD/USA. If the USA fails, the rest of the World will have severe economic problems as well.

I know nothing about economics. OK, I am a senior citizen (by some measurements) of the USA, and I did have a few economics courses in college decades ago so I am sure that I do know "something", but for the purposes of this post, it is easier to present myself as a blank page on the subject.

Currently the Canadian dollar is worth more than the USD. This was also the case in the late 1950's and again in the mid 1970's. What I have read today is that the border cities of the USA have been experiencing an influx of Canadian visitors who have come to partake of the goods and services in these "cheap" times.

http://www.buffalonews.com/cityregion/ontarioniagara/story/174364.html


All over the media in Canada as you can well imagine.


The questions that pop up immediately are these:

1. Is this not an economic boon for those border USA cities providing those goods and services because of sudden additional customers? What is the impact?

Good for US merchants, yes. Their sales increase as the Canadians rush to buy.

2. Does this mean that the border Canadian cities are experiencing a corresponding decline in customer demand? What is the impact?

Yes, sales are reported falling in places like Windsor (Ontario) that is just south of Detroit, a bus ride away under the river. Not good for the local economy.

3. What are other advantages, if any, of the present exchange rate to the USA? What are the disadvantages?

US goods will be cheaper abroad. Good for US manufacturers and suppliers. Comsumers in the US will be paying more for imported products in the longer run (even those from China).

4. Similarly, what are other advantages to Canada, and what are the disadvantages, if any?

Canada is the USA's biggest trading partner. Imports from the US will be cheaper but those from the rest of the World will not change in price. Canadian exports to the US will be less competative with those produced in the US so exports to the US will decrease. Overall the impact on Canada is not good because the economies are so closely integrated.

5. What is the overall "impact" of the Canadian dollar being stronger than the USD? I was alive when it was stronger both times before and I never even realized it. Is there any difference today?

Since the prior time of parity we have negotiated a free trade pact with the USA. This means that Canada has no control to exert on transborder trade by imposing duties. This, IMHO, is not good for Canada.

One "financial forecast center" I have accessed is predicting the USD will rise again above the Canadian dollar even though their predictions for September of this year were obviously off. Any comment on this?


http://www.neatideas.com/cdollar.htm

If anyone really knew how to forecast anything they would be rich.
:D

[Björn Toulouse]

US goods will be cheaper abroad. Good for US manufacturers and suppliers. Comsumers in the US will be paying more for imported products in the longer run (even those from China).



Canada is the USA's biggest trading partner. Imports from the US will be cheaper but those from the rest of the World will not change in price. Canadian exports to the US will be less competative with those produced in the US so exports to the US will decrease. Overall the impact on Canada is not good because the economies are so closely integrated.



Thanks, Gord. It seemed that if given a choice of identical products, the majority will purchase the cheaper in price. I wasn't sure whether or not the monetary situation was only good/bad for the border cities.

The quote about the USA paying more in the long run for imports - is this connected with the USD/Canadian dollar exchange or something else?

My 2 friends are part of the NWO/one world government fearing/Jesus is coming to get us crowd, and they see the Apocalypse in nearly every news story. If the "demise" of the USA rocks their world as well, they are still all for it because they need for it to happen to sustain those deluded beliefs. We communicate on another board and I was just annoyed about their take on this Canadian dollar thing.

[balrog666]

Thanks, Gord. It seemed that if given a choice of identical products, the majority will purchase the cheaper in price. I wasn't sure whether or not the monetary situation was only good/bad for the border cities.

The quote about the USA paying more in the long run for imports - is this connected with the USD/Canadian dollar exchange or something else?

[snip]

Yes, but not just the Looney. The dollar is also down against the Euro and most major currencies. The dollar is worth less in terms of gold, silver, tin, lead, platinum, copper, oil, etc. The dollar is just worth less as measured by anything except Zimbabwean dollars.

If you want to know how the Looney is doing by itself, you have to check the exchange rate trend versus the Euro, et al. and the prices of various commodities over the last year or two.

[brodski]

A week currency is not a bad thing in and of itself, indeed it can have a positive impact on many economic sectors (notably tourism and export), it is however a symptom of underlying economic issues. The question is not “is a week dollar a problem”, the question is how serious are the issues which have caused a falling dollor.

[The Atheist]

A week currency is not a bad thing in and of itself,...

A week's a long time in politics, but a weak currency can hang around indefinitely.

[The Atheist]

If they had any sense they would not cheer for the demise of the USD/USA. If the USA fails, the rest of the World will have severe economic problems as well.

Bloody well answered all the way.

This is one bit which does amuse me - people taking pleasure out of USA's [putative] impending economic crash.

Didn't work out too well for everyone else last time that happened.

[WildCat]

Didn't work out too well for everyone else last time that happened.
If you're referring to the 1929 crash Europe was way ahead of us. But economies of different countries weren't so intertwined then.

[ChristineR]

In the case of Canada, it means more Canadians going to the US to go shopping and more Canadian tourists, but fewer US citizens going to Canada for shopping and tourism. As there are many more US citizens and most Canadians are not close enough to the US for routine shopping, the impact is larger when the US dollar is strong. That is, the drop is tourists from the US probably outweighs the chance to buy cheap jeans across the border for most Canadians.

On the other hand, goods imported from the US are now cheaper and certain sectors such as "pharmacy tourism" (US citizens without prescription drug coverage buying Canadian drugs) are still going strong. To the Canadians it seemed very out of balance for a long time, so quite a few of them are gloating.

What I really don't understand is what it all means. You'd think that taking your Canadian dollars and buying a widget manufactured in Canada or changing your Canadian dollars to US dollars and buying a widget manufactured in the US should get you pretty much the same widget within money changing fees and transportation costs. But I doubt if that is the case or has ever been the case.

[Segnosaur]

What I really don't understand is what it all means. You'd think that taking your Canadian dollars and buying a widget manufactured in Canada or changing your Canadian dollars to US dollars and buying a widget manufactured in the US should get you pretty much the same widget within money changing fees and transportation costs. But I doubt if that is the case or has ever been the case.

You're right, things are never that simple....

For example, even though the Canadian and U.S. dollars are approximately at equal value, cars in Canada still cost significantly more than in the U.S. (In fact, so many Canadians had been going across the border to buy vehicles in the U.S. that automakers have started putting in restrictions, such as not honoring warranties in Canada for cars purchased in the U.S.)

http://www.theglobeandmail.com/servlet/story/RTGAM.20070926.wcarsuit0926/BNStory/robNews/

[Gord_in_Toronto]

You're right, things are never that simple....

For example, even though the Canadian and U.S. dollars are approximately at equal value, cars in Canada still cost significantly more than in the U.S. (In fact, so many Canadians had been going across the border to buy vehicles in the U.S. that automakers have started putting in restrictions, such as not honoring warranties in Canada for cars purchased in the U.S.)

http://www.theglobeandmail.com/servlet/story/RTGAM.20070926.wcarsuit0926/BNStory/robNews/

And for a long time, when the value of the $CDN was lower than that of the $US, cars in Canada were priced lower than in the US. The problem for the manufacturers selling in Canada currently is balancing annoying new buyers who think the prices should be reduced to match US prices with annoying buyers who bought within the immediate past and suddenly have the value of their cars reduced by thousands of dollars.

The problems caused by this rather rapid change in conversion rates are multitudinous and more complicated than anything we have discussed in this thread to date! :(

[GreNME]

The problems caused by this rather rapid change in conversion rates are multitudinous and more complicated than anything we have discussed in this thread to date! :(

For both sides of the border, if you ask me.

The change in exchange rate has been a bit of a boost for the US economy in the short run, but the continued decline along with the looming possibility of recession right around the corner worries me significantly. People aren't necessarily spend less (yet) here in the States, but every month the domestic spending numbers make me worry that one small bit of bad economic news is going to spin things into recession. The credit company stuff has so far not trickled down as much to the regular consumer spending as anyone has hoped, but that doesn't really make me feel any better because that whole mess was bad news more for people who had a lot of money tied up in that business, and obviously there weren't as many individuals as originally thought who were banking on it as an investment. If somthing happens that affected oil or some other wider-based market, people could panic and stop spending as much.

That's why I think it's bad both in the US and for foreign markets, because if the US hits a recession and doesn't bounce back quickly, other North American economies are going to be the first to see their exports suffer, followed quickly by the European economies. Things probably won't be so bad that the doom-and-gloom types hoping for the end of the world or the end of the US economy will be satisfied, but a lot of us who have investments that we hope can sustain us for retirement are going to take a huge hit in the pockets while we recover, and I expect that isn't going to bode well for interest rates coming out of such a crunch either. This is more significant to the mid-to-upper middle classes, because we've had enough income to put into investing and spending (unlike those who make less income), but don't have the liquifiable safety net that those who make more than us have.

[The Atheist]

If you're referring to the 1929 crash Europe was way ahead of us. But economies of different countries weren't so intertwined then.

October 1987

[Raskolnikov123]

1. Is this not an economic boon for those border USA cities providing those goods and services because of sudden additional customers? What is the impact?

A weaker dollar is a boon to exporters, and a bane to importers. So yes, a border town that essentially exports goods to canada would benefit. But don't ignore the flip side, which is:

1) everyone who buys imports will be paying more.
2) A good share of the reason for the dollar's decline is that as a nation we export less than we import (the trade deficit). So losers outnumber winners.

2. Does this mean that the border Canadian cities are experiencing a corresponding decline in customer demand? What is the impact?

A reverse of the above. Canadian importers are happy, exporters are not.

3. What are other advantages, if any, of the present exchange rate to the USA? What are the disadvantages?


See above. The net impact is that as a nation we will have to pay more to consume the same basket of services that we consume today. This will require us to borrow, switch to more domestically produced goods, consume less, or some combination of those three.

But the US isnt a hugely trade dependent nation. I doubt most of us will notice anything except when we travel abroad or meet high spending Canadian tourists.

4. Similarly, what are other advantages to Canada, and what are the disadvantages, if any?


Vis a Vis the US, the reverse of the above. Don't know what Canada's net trade situation is and they aren't important enough for me to look it up.

5. What is the overall "impact" of the Canadian dollar being stronger than the USD? I was alive when it was stronger both times before and I never even realized it. Is there any difference today?


For current levels, probably not. But economists have been arguing for decades that our trade deficit was unsustainable, and that the piper had to paid someday. In the long run, sustained trade deficits result in currency depreciation. If the currency keeps dropping to the point where the trade deficit vanishes, you very well may notice. But what you would notice is the high price of imported goods. It probably wouldn't mean anything real huge for you. As I said, the US isn't very trade dependent. Most of us can absorb the higher prices of imports without a significant impact on our standard of living.

[Gord_in_Toronto]

<< SNIP >>

Vis a Vis the US, the reverse of the above. Don't know what Canada's net trade situation is and they aren't important enough for me to look it up.


<< SNIP >>


Of course not. Heaven forbid that you would be actually interested in the USA's biggest trading partner. :boggled:

[Raskolnikov123]

Of course not. Heaven forbid that you would be actually interested in the USA's biggest trading partner. :boggled:

Was being cheeky. <3 Canada.

[Whack01]

I would like to say that the weak dollar isn't a sign of weakness in our economy, but I can't quite say that.

Congress has been whining for the better part of a decade now about China et al keeping their currencies artificially low to create a trade surplus for those countries. The dollar is not weak today solely due to our lending troubles, it's due to nearly a decade of hard work by our elected representatives.

Basically as I'm sure somebody has already pointed out, the theory goes that if we have a weak dollar other countries will buy more of our goods and our trade deficits will shrink. Sadly the geniuses in congress don't mention that our deficits only shrink if we actually buy less stuff rather than just taking out a loan.

[Gord_in_Toronto]

Was being cheeky. <3 Canada.

Eh?

[Björn Toulouse]

It appears I will go to bed tonight with the USD back up above the Looney even though some said it would not happen until Spring of 2008, so I guess God's back in his heaven and all's right with the world.

You had a good run and maybe now all of the Manhattenites can get their Northern hydroponic at a better price for Xmas.:D


http://finance.yahoo.com/currency/convert?amt=1&from=USD&to=CAD&submit=Convert