Greenbacks chasing loonies
For a generation, Americans have had a reason to feel superior to Canadians: Our dollar was worth more than theirs. Ours was a full dollar; theirs was discounted. And thus it was a shock last week when the Canadian loonie stole across the line of superiority and registered a value of $1.0008.
There were several reasons for this. Oil is the obvious one. Canada is endowed with much oil and gas, and the rise in its value tends to lift the currency. Americans have a large appetite for that oil and gas, perhaps more than is good for them. Another reason for the muscular loonie has been the financial probity of Canada’s conservative government. Unlike our conservative government, Canada’s has really and honestly balanced its budget.
This year, Canada is planning to run a 2-percent budget surplus. Canada’s Treasury has announced a long-term plan to pay off the central government’s debt, allowing cuts in the rates of personal income tax.
Imagine that: Pay off the debt, then cut the tax.
Our conservative government doesn’t think that way. It cuts taxes first, increases domestic spending and starts a war. Our conservative government put the whole smorgasbord on the credit card and argued that there would be no financial indigestion.
When indigestion arrived in the form of a subprime-mortgage crisis, Fed Chairman Ben Bernanke slashed the interbank lending rate. Probably by that time, it had to be done but it was not what a prudent, fiscally sound country should have had to do.
With the interest-rate cut, the dollar fell again, because it is less rewarding to park one’s funds at a lower rate of pay.
Now the greenback swims in the same pond as the loonie, which as recently as January 2002 was worth just 62 cents on the dollar.
And it’s not just Canada: The dollar has fallen this year against the euro, the pound, the yuan and the yen, and also against such proud players as the Polish zloty, the Russian ruble, the Philippine peso, the Mexican peso and the Brazilian real.
We shall have to be polite to the Canadians.