During yesterday’s trading, and then again today, the Canadian dollar achieved parity with the US dollar. Our economic system is a complex beast, not even fully understood by experts. However, there are likely two broad explanations for the dollar’s rise.

First, the American economy is in serious trouble. The events triggered by the collapse of the sub-prime mortgage Ponzi scheme have not yet played out in full. The housing boom was a key driver of US economic growth, but now over one million Americans risk losing their homes. In order to keep the market from collapsing, the Fed has injected more money than they did in the wake of 9/11. The other key to US economic strength, consumer spending, is also quite vulnerable thanks to a negative savings rate, declining consumer confidence, an average credit card debt of $9000 per person, and an average national debt of $29,500 per person. Oh, and then there’s the little matter of the $3,000,000,000.00 per week war in Iraq. The fact that our dollar is doing so well compared to the greenback isn’t necessarily something to brag about. You’d look like a supermodel too if you were standing next to an ogre.

The second reason the loonie’s gone loony is that our dollar has generally come to be considered a “petrocurrency,” in the sense that it has a close and direct relationship with the price of oil. The fact that oil is now hanging-out above $80 a barrel and is projected to continue to rise is an indication that we’ve used up all of the easily-accessible supply. The stuff that’s left in the ground is dirtier, more expensive, and more energy-intensive to extract (reducing the Energy Return On Energy Invested), meaning that until we shift from a paradigm of perpetual consumption and growth to one of conservation and efficiency, our energy crisis will only get worse.

In other words, the “high” dollar is hardly cause for celebration. Add to that the fact that our economy is already starting to feel the effects of what is likely to be a US recession, and the fact that the Conservative budget left us absolutely no wiggle-room for dealing with this eventuality.

And then that word, parity, starts to take on another, more sinister and dangerous meaning. An alignment with the US economy so tightly integrated that we can’t escape the increasingly powerful gravitational pull of its implosion. An alignment with the US military so close that we can’t say no to American-led wars. An alignment with US energy policy so one-sided that our own citizens freeze in the dark.

Wait, isn’t that just the worst-case scenario? Yes. It’s also where we’re heading.

2 thoughts on “Parity

  1. The view from the other side of the border is interesting. You are correct that your economists have some difficulties with your economy as I believe the principle is that of John Gresham. Mr Gresham is pretty dense reading. As to the rest of the dollar slide it will have worldwide impact. Probably negative. The blame for this fiasco is being placed on the low income/first time buyers and this is total nonsense. This segment of the mortgage market has been around since 1948 and has never amounted to the amount of default that presently exists. The real culprits are the speculators who drove prices world-wide. I agree, the ponzi/pyramid scheme crowd is part of it, but not large enough to do significant damage. Unfortunately, there is more to come. There is the unreported and not even considered segment that is still being carried as construction loans. This does not show as mortgages. These are the developments that are empty, have no buyers in sight and priced in high ranges that the builders have little leeway to negotiate. If the powers of government can contain this to a recession – we will all be lucky.

  2. Chris

    When you use the term Ponzi attached to the housing crisis you should really be using it context of the entire finacial system based fiat currency. It’s as much the fault the ability to create vast mounds of etherial money without any real assest to back as it was the poor lending practices of U.S. banks. The world of fiat money has funded the tech boom, the housing boom, the stock market boom etc, it has also funded rampant consumerism and over consumption in every society with a vigorous credit system. Fiat money has killed the environment and funded world militarism.

    While what you say is true, the deeper truth is it’s our monetary system itself which is the cause of our trouble. This is not a U.S. problem but a world problem as most of the G8 creates money at 10%ish while growth is less than a third of that, India and China create money near 20% and Russia near 50%. Insane levels of monetary creation have funded every bubble and subsequent crash since the creation of the Federal reserve in 1917.

    Where we are heading is a systematic break down of our finacial system, this credit crunch and U.S. (U.K soon) housing slump will be nothing compared to the time bomb that is the derivatives market, we are going to see bank failures, currecny failures and quite likely world depression within less than a decade.

    My fear is it will get so bad the environment will no longer be an issue to anyone.

    We need new rational monetary policy, to get out of Nafta, and find new markets for our wares as our best customer has maxed out.

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