Is the Canadian Dollar Any Safer than the USD?

13 posts / 0 new
Last post
wfhyslop's picture
wfhyslop
Status: Bronze Member (Offline)
Joined: Sep 3 2008
Posts: 46
Is the Canadian Dollar Any Safer than the USD?

With all the talk of hyperinflation and dollar collapse in the US, I have begun to wonder whether the Canadian dollar is in any better shape. The CAD has lost about 20% over the past few months and has rebounded some lately or at least stabilized its decline. However, it appears the Euro and Yen are gaining much more relative to the USD. The media, and Canadian politicians, have repeatedly said that Canada's economy is in much better shape than the US due to stronger banking system, etc. I tend to agree with this assertion, however some recent events give me doubt whether this will continue. The Canadian government has pledged $75 Billion to backstop mortgage debt for the Canadian banks which have been forced to raise capital. PM Harper who during the election campaign claimed there was no recession in Canada, and put out an economic statement that was aimed primarily at cutting government spending, now seems to be transformed into Bush/Obama-North. They just announced a $4 Billion bailout of the Canadian Big 3 and has said he will spend up to $30 Billion on a stimulus package.  The housing market in Canada is just starting to decline significantly and housing starts, prices, and defaults can only increase over the near future.

As the old saying goes "If the US sneezes then Canada catches a cold".  I fear this may be true in this case as well. Now that Canada has caught the bailout and stimulus virus will the prognosis be any different here. There is no evidence that they intend to print money yet, but I fear it is only a mater of time.

I would appreciate others views on this issue.

Thanks,

Will 

carlos's picture
carlos
Status: Member (Offline)
Joined: Dec 17 2008
Posts: 3
Re: Is the Canadian Dollar Any Safer than the USD?

If the USD crash, it will crash against other money currency. What I mean is in case of the USD crashing, which money currency will stay strong? Yes the CAD is linked to the enconomy of the US but also to the price of oil. I think pretty much the crash of the USD will coincide with the oil price skyrocketing. This means the CAD will stay up until we can feel the bad impact of the US economy here i.e. a few months. I think if the CAD crash, we will see it coming and will have time to react (gold).

Ruhh's picture
Ruhh
Status: Gold Member (Offline)
Joined: Nov 12 2008
Posts: 259
The Greater Fool

If you're interested in the Canadian situation take a peek at Garth Turner's (former Liberal Member of Parliament) blog The Greater Fool.

The site has a different tone but some of the commentary is quite interesting and actually led me to the Crash Course which I'm undoubtedly greatful for.

scbt's picture
scbt
Status: Member (Offline)
Joined: Oct 22 2008
Posts: 20
Re: Is the Canadian Dollar Any Safer than the USD?

The $75 billion mortgage backstop, the $30 billion stimulus and the
$4 billion to the big 3 total $109,000,000,000.  This was just another
massive number to me until I looked up the 07/08 federal expenses,
these totaled 233,000,000,000.  Now I see that this represents a
possible increase of 47% (if the mortgage backstop is to be fully taken
advantage of).

Now it's not just another meaningless huge number to me, it's a potential 47%
increase so far.  If there's a cushion between America and Canada I think it's
getting thinner.

Ruhh's picture
Ruhh
Status: Gold Member (Offline)
Joined: Nov 12 2008
Posts: 259
Re: Is the Canadian Dollar Any Safer than the USD?

scbt wrote:
If there's a cushion between America and Canada I think it's
getting thinner.

No doubt!

I sit here in Ottawa nearly begging family and friends to start paying attention to the economy (besides mainstream media) and watch the Crash Course or at least have them hear me out with a 5 minute explanation with no avail. The standard responses:

  • It's not going to affect us like it will in the States
  • Our banking system is much safer here
  • It's only gonna be a short little recession
  • Like anything else it's just a glitch and the market will correct itself
  • Canada is huge and has a lot of resources and little population (I do agree with this as long as desperate US expatriate don't start flooding the gates)

Yeah well if our government jumps on board our neighbour's sinking ship we're going down too.

Our parliament recently prorogued and won't be seated again until late January. I'm certainly not with the Conservatives but sure as hell didn't want to see a coalition government with separatists. I breathed a sigh of relief when the Governor General accepted the prorogation simply to stop the current or coalition government go into a bailout spiral into deficit.

What would I do? I know going into a deficit is ineviable but ...

Maybe instead of bailing out the auto industry they could try relieving student debt (only gov loaned with a clause that they remain in Canada for the next 5yrs). All those students paying $450 a month could be stimulating the economy with that extra income, buying homes/condos and cars. Hell maybe they'll even buy from the big 3 but let's let the market sort that out right.

Maybe an infrastructure project protecting our sovernty in the north and heavily beefed up border to the south (see last point above but take no offense)

Maybe make serious investments in renewable energy projects and public transportation. I feel this one now as Ottawa is currently in a bus strike and snow and cold are really crippling the city.

No doubt we won't be as bad as the US but our dollar won't be too far behind if our gov spends us into oblivion by throwing money into black holes.

I'm just glad I've got a stable gov job in Ottawa and a decent camp on a clean river far away from major urban centers. If only I could convince others to start building community around there but all they're worried about now is getting their giftmas shopping done.

wfhyslop's picture
wfhyslop
Status: Bronze Member (Offline)
Joined: Sep 3 2008
Posts: 46
Re: Is the Canadian Dollar Any Safer than the USD?

scbt,

Your 47% spending increase puts this situation in a clearer (and scarier) perspective. As with you , I am not sure how the $75 Billion mortgage backstop fits into the picture yet. I am amazed that the Canadian govenment can put in place a program that proportionatley (1:10) is bigger than the US TARP program ($700 Billion) and it does not seem to be mentioned in parliament or the media.

The government press release on Nov 21 says "This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy. In addition, it will earn a modest rate of return for the Government with no additional risk to the taxpayer." When the government promises to earn money with no risk to taxpayers, this gets me instantly nervous. I believe Paulson said this originally about the TARP program. These are "insured" (CMHC) mortgages and supposedly not "toxic" but defaults will still cost the government.

With the Auto Bailout the Canadian government has already promised that the bailout will be proportional (20%) of any US bailout. This means when the Obama administration increases the ante then we will have to also. So in this case we are guaranteed to be in at least as deep as the US. Canada has gone a few steps further and promised to bailout the aerospace industry (Quebec) and forestry sectors (BC) and probably more to come. The new yet to be written stimulus package will be at least $30 Billion as confirmed by PM Harper last night on TV. Given his tendancy to underestimate spending commitments you can only assume this will increase substantially next year. Given the current power vacuum in Ottawa it will probably turn into a bidding war to first avoid an election and then a new round of bidding during a new election. This will be driven by politics and regional concerns much more than fiscal or economic realities. We could quite conceivably see a stimulus package much bigger (proportionately) than the US and with less effect due to the regional politics involved.

Hopefully I am missing something, but I see Canada marching down the same road as the US which ends with a cliff, but Canada seems to be picking up the pace and the US possibly pausing to reflect.

Will

wfhyslop's picture
wfhyslop
Status: Bronze Member (Offline)
Joined: Sep 3 2008
Posts: 46
Re: Is the Canadian Dollar Any Safer than the USD?

Ruhh,

I share your frustration with people in Canada automatically thinking we are much better off than the US. I am not convinced of this and I am beginning to think that we could be much worse off depending on the response of the government. Our current political mess is the biggest wild card in all of this. The current Conservative government will be forced to the upside on any stimulus package by the other "coalition" parties. If the "coalition" gets into power then count on the last stimulus number being doubled (with 50% to Quebec). I am afraid as taxpayers we can only hope for the government to do the least damage. Also as the crisis deepens in early January, and our government is still in a self-enforced timeout, they will have very little ability to react to global factors affecting the Canadian economy.   By February when the crisis becomes full blown, Canada may be in the midst of an election campaign with all parties promising to spend the most (with no real plan).

I agree with you that the only sensible stimulus package would be on infrastructure. But not new hockey rinks, roads, etc but building for the future: urban transit, upgraded railroads, wind power, etc. REAL projects not R&D.

I truly think we need a Crash Course (Canadian Version) so that people might see that these concepts and numbers apply equally to Canada (and all countries).

 All the best,

Will

fxfarms's picture
fxfarms
Status: Member (Offline)
Joined: Feb 22 2009
Posts: 10
Re: Is the Canadian Dollar Any Safer than the USD?

Interesting piece in the NY Times on Saturday.

http://www.nytimes.com/2009/02/28/opinion/28tedesco.html?_r=1&em

Do I believe the Canadian economy is better off than the southern economy? Yes, to some degree, but time will tell.

Over 40 percent of Canada's current GDP is from U.S. consumption. With Americans consuming less, Canada's GDP falls.

However, with CAD being linked to oil, then the CAD is a much better hold than USD.

messenger's picture
messenger
Status: Member (Offline)
Joined: Oct 18 2009
Posts: 1
Re: Is the Canadian Dollar Any Safer than the USD?

No! why...

Exports - partners:

US 77.7%, UK 2.7%, Japan 2.3% (2008)  

https://www.cia.gov/library/publications/the-world-factbook/geos/ca.html

When the US has a cold the CDN's will suffer! This is NOT FACT?

Got Gold?

Hi All, I'm new here and would like to see the facts and this is one of THE best places I have seen on the WWW...

I will post more about "FacT" in do time.  :)

God Bless.

Rob.   The Me$$anger.

Thinkor's picture
Thinkor
Status: Bronze Member (Offline)
Joined: Sep 13 2009
Posts: 32
Re: Is the Canadian Dollar Any Safer than the USD?

1.  Just looking at the canucky buck's performance over the last five years shows it has outperformed all the major currencies except the yen.  It has even outperformed the Swiss franc.

2.  Revenue is greater than 90% of expenditures vs. about 50% for the US.   Debt is 72.3% of GDP, much better than the US.   Exports almost as much as it imports.   Has maintained higher interest rate than in US and recently increased rates.   It's hard to see how any of this is bad for Canada.

3. Canada has oil, water, etc. as many have noted.  A huge plus.

4. Obama is not the President.   A huge plus.

5. Canada's banks have a much better reputation.   Perhaps it is not entirely deserved, but perception counts for a lot here.

6. Although 77% of Canada's exports go to the USA, some of that surely could be put on boats and shipped elsewhere to economies stronger than the US economy. 

So, yes, I'd say that the canucky buck is a lot safer than the US$. 

Canada's main problem is if the US decides to pull an Anschluss on Canada to get control of its natural resources, but don't worry yet, the coming perhaps-not-so-civil war in the US will have to be resolved first.

greenshoots's picture
greenshoots
Status: Member (Offline)
Joined: Nov 5 2010
Posts: 1
Re: Is the Canadian Dollar Any Safer than the USD?

Is the Canadian Dollar any safer than the USD? of course not, Canada is just a small tugboat attached to the US oversized sinking ship. One would think after the first bailout not helping the least bit why a second would do any better. As far as bad mortgages go. You dont see it on the news that another 400 mortgage defaults today up from the 350 yesterday comes across the screen. NO, its all GREENSHOOTS. Try and explain that to the 8.5% of canadians who are on employment insurance trying to cover their 40 year CMHC mortgages they all got with zero down. One can only wonder just how bad it can really get.... got gold? I bet if PM Harper where to tell everyone where all F**ked unless you have gold bullion under your bed there would be people running.. Government alright.. Tell you what you want to hear, not what you need to be told.. Crash course Canadian Edition? excellent idea

Claude's picture
Claude
Status: Member (Offline)
Joined: Nov 24 2010
Posts: 2
Re: Is the Canadian Dollar Any Safer than the USD?

Bank of Canada and Gold.

Same path then US Finance !!!!!!!!  For friendship, Canada ready to dive.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/11_B...

bluestone's picture
bluestone
Status: Gold Member (Offline)
Joined: Dec 29 2008
Posts: 263
Re: Is the Canadian Dollar Any Safer than the USD?

Dr. Martenson made the remark in one of his blogs about a year ago, that all currencies are skydivers.  Having, said that, he said that he felt the Can dollar was one of the better currencies.  I wonder what he would say today.  I drove up to Canada and opened a bank account in Canada just as a hedge for me.  But then again,  the wise Homer Simpson once said, Canada is just America Jr.

Brian

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments