A tale of two economies

The Canadian dollar steadily increases in value. Or the American dollar steadily decreases — whichever way you want to look at it.

From an editorial in the print edition of today’s Globe and Mail:

The loonie [i.e., the Canadian dollar] has risen more than 13 per cent this year alone, closing yesterday at 97.01 (U.S) cents. …

To the astonishment of many Canadians who watched the dollar hit a record low of 61.76 cents in January of 2002, the currency has been rising for almost four years.

For many years, I maintained that whatever happened to the US economy, it was always bad news for Canada. If the US economy prospered, we seemed to suffer by comparison. If the US economy tanked, the Canadian economy seemed to suffer with it, presumably because Canada’s economy is so closely tied to the American economy.

The Canadian dollar gradually dwindled in value from the mid-1970s until it reached the low mentioned above in January 2002.

The point is, the USA must have been doing something drastically wrong over the past four years for the Canadian dollar to rise continually as it has. I’ll let readers speculate about what the Bush Administration has been doing wrong.

The Globe offers two explanations for the increase:  high prices for oil and wheat and, overall, a relatively strong Canadian economy. Of course, saying that Canada’s economy is strong relative to the US economy explains nothing.

The dollar’s increase against its US counterpart represents the strongest performance of any G-10 nation. …

Commodity prices for oil and wheat are high; in fact, oil prices hit a record $80.70 a barrel yesterday. Purchasers are selling U.S. dollars to buy those vital commodities from exporting nations such as Canada. As well, Canada’s economy remains relatively strong, running healthy fiscal and trade balances. …

Many economists are predicting that the U.S. economy is on the brink of sliding into recession as unemployment rises. That slowdown will eventually hit Canada.

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