THE VALUE OF OUR MONEY

The Canadian dollar changes in value or purchasing power on a continuous basis and the trends could be up or down in relation to other currencies. Because currency changes are relative the perception of our dollar "rising" could be incorrect because it could be that the other currency could be falling making our dollar appear to be rising. As a matter of national pride the sillies at the CBC often report the Canadian dollar is rising against the US dollar when in fact the US dollar is falling against ours and our dollar is falling against the British Pound!!!  Really stupid!

For purposes of explanation lets leave the money for a few seconds and consider the problem of the sun which appears to rise and fall in the sky. Actually it is not rising and falling -its all due to the movement of the earth and the fact that it is spinning on its axis and traveling around the sun at the same time. So there you go another example of how our brains tend to stuptify things so we can deal with them. Now back to money!

The concept of the value of money in our society is pretty significant. A person needs to know that when they accept so many dollars in payment that those dollars will have a predictable purchasing power within the society. As a silly example you really need to know that your paycheque will provide enough purchasing power to pay for your needs. What if you went down to the grocery story and the nice lady behind the counter advised you that your groceries were $1235.47 and you had gotten paid $800 that pay. It would be a disaster. What if all you purchased were a pound of butter a five pound pot roast and a loaf of bread. This has happened in other countries and the term is called runaway inflation. That has not happened in Canada yet. 

What we have in Canada is constant devaluation of our dollar based on two factors -an inflation rate of approx 2.4% per year and constantly rising prices mixed with high taxes. So every year that goes by sees the purchasing power of our dollar fall. If you don't get a pay raise every year to keep up you effectively have gotten a reduction in your pay every year -while costs climb. 

But where is the bullshit here you say? 

The bullshit is that citizens are generally not educated to understand the concept of an ever changing currency. They just don't get it. As a result some people are "happy" to report that "they made money" on an investment when in fact they lost money on it. As outrageous as it seems some investment houses will lay claim to a completely fictitious growth of the value of their investments based on not making a distinction on the changing value of our dollar. That is they will take a point ten years back and say that their investments have increased 20% when the reality is the value of the investment has actually decreased in constant dollars!! And people are sucked in!

Some people are happy to report that their house is worth twice what they paid for it when they are talking about a comparison using two completely different types of dollars. For example as a kid I could buy enough candy for a quarter to make myself sick. Today I would need twenty times that amount of money for the same effect and the same weight of candies. The candy manufacturers are not making 20 times as much money. What is happening here? Its simple the value of a 1957 quarter is not the same as the value of a 2007 quarter

Micro and macro economics is not generally taught in Canada until the University level and only a bit over 11% have a university degree and only a small percentage of them studied economics. I was lucky enough to study economics at University and the abysmal level of understanding of economics in the general population is distressing to me. I also have a working knowledge of economics having worked in a bank and having been the person responsible for setting the official exchange rate for a Canadian province. I can assure you of one fact -there is a huge amount of bullshit associated with the value of the Canadian dollar in our society. People who understand the concepts have been screwing those that don't for generations. Stick it to the man - study some basic economics and try to understand the concept of an ever changing value for our money.  

If you are old enough you will have noticed that the Looney is much like a quarter and the toonie much like a fifty cent piece, the twenty dollar bill now buys less than a ten dollar bill did and the fifty dollar bill is now beginning to look like the old twenty. Those should be warning signs to you. Because sooner than you think the $100 bill will begin to have the purchasing power of a twenty. 

Its all bullshit. That 6% raise your Union got you over three years.. it means you make less money than you made last year dummy and you are getting a pay cut each year of your contract thanks to to wonders of inflation, high prices and taxes linked directly to the cost of items. And they were bragging to you and bumped up the union dues too. Sucker! 

Sept 21/07 Recent developments: The cdn dollar hit parity with the US dollar the other day and is fluttering over the 99 cent level. This has caused a very interesting yet predictable reaction from the media given their apparent lack of understanding about the significance of this event. What they have decided to do is concentrate on the fact that parity was reached and then they went back in history listing the last time this had happened and the value of the dollar over the years. In other words they took a type of historical perspective and the message was one of gloating well being and we done good eh and ha ha USA. Stupid -really stupid. 

Lets consider the lost wealth for Canadians who have any investments in American securities. In fact Canadians have over 33 billion dollars in direct investments in the USA. So parity with the US dollars has been a disaster for them. Wealth has been destroyed at least on paper. The USA has over 72 billion of direct investments in Canada so...wait for it....consider it for a moment ... here it comes!!! the parity of the Canadian dollar has been a windfall for them!   That this fact which I consider at least significant was not even mentioned by our media just shows how much bullshit is out there. 

Canada has had a productivity problem compared to the American worker who will work himself into the grave. Our low valued dollar sort of evened things out on labor costs giving us a slight advantage even with our higher costs here and lower productivity. Now with parity we are screwed.  We will not be able to compete with the more productive US worker and their lower production costs. We will start loosing manufacturing jobs almost immediately and those are the good jobs which prop our economy up.  There was hardly a whisper if anything about this point while the correspondents prattled on about historical dollar levels and marvelled at how much Canadians could now buy down in the States with cross boarder and internet shopping. Dullards. 

Its going to be interesting to watch and see what happens next but don't count on the media to keep you informed because they don't get it.

Update Nov 7/2007  Today the Canadian dollar aka the loonie hit $1.10 US in overnight trading in the East. The factors suggested by the media which resulted in the dramatic rise of the dollar included the rise of the price of a barrel of oil (we have lots), the weakening of the US dollar (they are in real trouble), the strength of the Canadian economy and the repositioning of currency reserves by China. China has 650 billion in foreign currencies and they have decided to reposition their holdings in safer currencies meaning that they will be moving from the USD. Just about every financial expert and prognosticator in Canada has been wrong as past predictions on the value of the dollar have proven to be just so much bullshit. That's despite the huge salaries these rascals are hauling out of the Canadian financial trough. The question now is -What does it all mean? 

Another question is -Why are we paying our experts so much money to bullshit us? Even David Dodge the govenator of the Bank of Canada said that the canuck loonie was overvalued. Here is what our chief banker dude said when the loonie was at 1.02 US back in Oct.

the recent rise was "abnormally quick and doesn't seem to be related to the domestic factors which would normally lead to that sort of appreciation."

Lets just go over Mr. Dodge's salary -from the bank of Canada website

  • The current salary range for the position of Governor, as set by Cabinet on 19 February 2007, is $346,700 to $407,900.

This dude ( Mr. Dodge) makes about $200 an hour and is responsible for managing the Canadian dollar. He is clueless when it comes to the value of the loonie. This is bullshit. How could anyone be paid that much and have such a incomplete understanding of what is going on with our buck? He is supposed to be the expert isn't he?

Here is all you need to know about the value of our loonie. If it stays at or over its present level of $1.10 in USD -manufacturing in Canada will be destroyed and along with it hundreds of thousands of good paying jobs. Why?  Its a simple as that. Canada with its much higher costs and lower productivity absolutely depended on a weak currency to make our manufactured goods affordable and competitive.

And if the American economy collapses so will ours as we are  joined at the hip to them. Americans are the biggest consumers in the world and without their buying power the entire economy of the world would be essentially ruined. Canada would be first in line.

China has so much money in foreign reserves that they can if they wish manipulate the value of the loonie at will. For example they can buy the loonie then sell it off suddenly forcing down prices at which point they can buy again at lower prices and then as the currency bounces up and down they can sell high and buy low and make a killing. They can also effectively suck billions of dollars of wealth out of the Canuck economy and re-invest in other currencies. I believe the technical term for this is "screwing the other dude's economy".They could bring a country to its knees without the messy collateral damage of a shooting war. The Chinese are not stupid. Like the citizens of other  unnamed countries (like Canada where we have an abysmal knowledge of basic working mathematics!) 

So how does our media handle all this? They have dumbed the problems down the level of a third grader and show Canadian shoppers in US malls. They show line ups at the border. Duhhhhhhhh.  They show extremely naive Canadian shoppers demanding to pay the US dollar price listed on books. 

The bottom line is this. Go down to the states. Go as far as one or two states from the border and then with an empty gas tank see how much gas you can buy with a shinny new Canadian $20 bill. The answer will surprise you. You won't be able to buy anything with it because our American cousins still think of our money as funny money -something you might use in a monopoly game. Tell them that our money is worth more than theirs. They won't be impressed and I hope you have a credit card or some US cash because you are in deep doo- doo. Up here in Canada most merchants will still welcome US dollars despite its lower value. This is called a reality check. 

There is a lot of bullshit associated with the value of the Canadian dollar. Its no more complicated than that! Good Luck! And here is an example of what Canadian money is worth at auction. 

 

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