I 've been wrong before

ole joyful

If you'd bought Canadian dollars about 3 years ago ...

... you could have made a decent rate of return on your money in the meantime ...

... and cashed them in now for a 40% increase in value.

Similar for Euros.

And now - some oil-producing countries are asking for payment for their oil in Euros, or Swiss francs.

Not U.S. Dollars.

Have a great week.

ole joyful

It is the major cause of the loss of 100,000 jobs last year and they expect about 120,000 jobs to be lost this year - which is the equivalent of about 1 million and 1.2 million in the U.S.

He says that he expects the Bank of Canada will raise the central rate a couple of times more in coming months ...

... but if the exchange rate goes up another couple of cents, that they will lower the rate, thus discouraging foreign investors.

Don't ask me for confirmation - I don't know.

Enjoy your day.

ole joyful

I think that something like 20% of our production goes over the border.

Paid for in U.S. Dollars. Which means that, apart from inputs that they buy in the U.S., paid for in U.S. Dollars, the actual value of the income from sales has shrunk by about 40%. You'd not be impressed were you to suffer a 40% decrease in pay.

Much of that reduced income reduces the profit that the companies have after they've paid for their necessary costs.

Some industry analysts said that, a few years ago when the U.S. Dollar bought more Canadian Dollars, the companies should have used the extra income to upgrade, become more efficient, preparing for the day when the Canadian Dollar would become more expensive.

Some did - some didn't.

When the central bank raises their rate, it ripples down, regular banks charging more, as well, making it more expensive to buy equipment to upgrade factories. It tends to attract more foreign money, seeking the highest rate. The central bank sometimes raise rates to try to reduce inflation, but that's not a big deal at present.

When there's a lot of unemployment and the economy is in rough shape, the central bank tends to reduce rates, making money "cheaper", so factories are more inclined to retool, thus putting more people to work, stimulating the economy.

Also, when governments have huge debt held by agencies in their country, they don't like to see interest rates go too high, for it means they'll have to pay a lot more interest on the same amount of debt. Leaving less in the till to pay for the many services that they need to provide.

Some years ago when I (a young guy) first went to Korea, a retired doctor helping fight TB there said that inflation was government theft. I disagreed at the time: much less so now. Note my thread either here or on "Money Saving Tips" a while ago, asking which investor gains from inflation and which loses.

When the government (or people) owes much of its debt to foreign agencies, however, if the value of their money drops in relation to the value of the money in the lending country, they're in a tougher place, for usually they must repay the lenders in the currency of the foreign country - that has become quite a lot more costly.

Suppose the Canadian Dollar and the U.S. Dollar were of equal value and Canadians or their gov't. borrowed money in the U.S.

Then the value of the Canadian Dollar drops 20% - CA$1.00 buys 80 cents U.S. In order to repay US$1.00, the Canadian borrower must raise 25% more - that is, he must make up the extra 20 cents to buy that U.S.$1.00 - and that 20 cents is 25% of the 80 cents that Canadian money is now worth (in the international trade sphere).

Not a pleasant situation.

Does this help? If you have more questions, feel free to ask.

As I've often said: learning how money works is an interesting hobby - that pays well.

That goes for learning how the tax system works, as well. Sometimes we can't find a way to benefit, but sometimes we can.

ole joyful

"When the government (or people) owes much of its debt to foreign agencies, however, if the value of their money drops in relation to the value of the money in the lending country, they're in a tougher place, for usually they must repay the lenders in the currency of the foreign country - that has become quite a lot more costly."

While the US government isn't in quite this spot as our debt is US dollar denominated, we still owe an awful lot to the rest of the world. As other currencies continue to gain strength against the US dollar, I sometimes wonder what kind of rates we'll have to pay to keep our treasury funded - and what kind of inflation it will trigger.

Fortunately I think the US economy is in better shape than it's sometimes given credit for, and I certainly don't foresee a flight from the dollar in the near future. But a ways down the road? Who knows?

Liz

A number of the foreign agencies (a major one being the Government of China) that hold U.S. debt now are holding U.S.-issued bonds. The U.S. issuers will be required to pay off those bonds at maturity in U.S. Dollars, of course.

The reference that I made, but did not indicate, in the part to which you refer was in situations where U.S.-based agencies made borrowings denominated in the foreign currencies, which would need to be repaid in those (at that time more expensive) currencies.

But this does not happen often.

When much of the U.S.-issued debt is held within their country, there is less risk of detrimental effects if confidence in the currency falls, as many are disinclined to move money abroad. There are deeper problems for the U.S. issuers when foreign entities hold large amounts of their debt, for they are much more inclined to dump the U.S. debt and put their money elsewhere.

In such a case, when the U.S. issuers issue new debt, if the issues are at former rates, knowledgeable lenders won't buy them, fearing that the value of the bonds may drop and they'll lose part of the value of their principal, down the road.

Which requires that the issuers offer substantially higher rates of interest, in order to have this new issue of the bonds be fully subscribed.

But - when current interest rates go up, say to 7%, lenders who had bought a bond issued earlier, paying, say 5%, will sell it on the secondary market, in order to buy one of the new bonds. He won't find any buyers of his bond at full value, however - for they don't want to earn only 5% any more than he does. So the only way that the holder of a $100. bond paying 5% can sell it is to be willing to accept $95. - $98., depending on how long term there is until that bond matures.

The rule for this is: when interest rates go up, the price of dollar-denominated assets go down.

Considering that the U.S. government carries a huge debt load now ... and is going deeper in debt each year because they're spending more than the income that they're generating, added to which they're putting a substantial number of tax cuts in place, a number of money management experts are growing increasingly concerned that the future value of the U.S. Dollar is in jeopardy.

Even though a much larger proportion than formerly of the total U.S. debt instruments these days that is held by foreign agencies can be paid off in U.S. Dollars, even though their value has shrunk, the risk that they may not want to buy more U.S. bonds in future because they fear more of the same is very real.

Even more so because many believe that the U.S. is printing a lot more money, these days - which puts the continued stable value of each one of those dollars at risk, into the bargain.

Sorry to be the bringer of less than happy news.

ole joyful

... but it did in Oct '07.

Resulting in more pressure on Candian manufacturers who ship a substantial portion of their goods to the U.S., being paid in U.S. Dollars - for their income has gone down 10 - 15% in th past year or so ... and about 35% in the past 5 years or so.

Same (or increased) amount of expenses for local raw materials, same number of employees, same amount of production - and 35% reduction in income on the portion of the manufactured goods going to the U.S.

The U.S. stocks that I own, whose value may have stayed the same, would now produce fewer Canadian Dollars for me, were I to liquidate them now.

As many feel that the Candian Dollar is currently overvalued, I'll hold on to them.

Why has the Candian Dollar appreciated so much?

We used to have one of the world's substantial mining companies, and one of the largest nickel producers, plus another major producer of nickel and other metals based here, though many of the shares were owned by people in other countries.

Within the past couple of years, controlling interest has been bought by foreign companies.

Plus most of our steel makers. Plus one of the world's larger producers of aluminum.

All those guys needed to buy quite a few Canadian dollars in order to finance those deals.

And U.S., Chinese and others are coming to buy up our producers of oil and natural gas.

Which we are fools enough to sell to them.

Can you imagine the U.S. owning none of the cinemas in which movies are shown in their country (and almost none of the companies making those movies)? That's the position that Canada was dumb enough to let ourselves get into, around 70 years ago.

Doesn't look as though we've learned much in the meantime.

I've heard workers say, "I don't care who owns the company - as long as I have my job here".

Some people can't see beyond the end of their own nose.

ole joyful

As for whether to cash the cheque for Canadian Dollars, if one expects to need Canadian Dollars in the near future, probably not a good idea to cash for U.S. Dollar equivalent, then purchase Canadian Dollars later, as there'll be exchange to pay twice.

And some have found that the exchange rate that some U.S. agencies charge is much too high.

Some time ago a former Canadian who'd become beneficiary through a relative's will reported that an agency in her area of the U.S. wanted a substantial amount to exchange it.

It was suggested that she return the cheque to the issuer in Calgary, asking them to exchange the money there and issue a cheque in U.S. Dollars, which she did, for a minimal exchange cost, as they do that every day in Calgary.

I'm not sure, but I think that the usual difference between buying and selling in this area is less than 1%. Also, it varies slightly between currency and financial instruments.

Another concern is that if it was issued more than 6 months ago, most banks call it stale dated and refuse to cash it, requiring that the holder have the original issuer issue a new one.

If you want to give me details, I can get local quotes for you.

ole joyful

Inflation or lack thereof, is a function of money supply, not exchange rates or economic strength, etc. This understanding is the legacy of the late Milton Friedman. He was the economist who first proved that the Great Depression was caused by the Fed. When deflation reared its ugly head, the Fed tightened money when it should have loosened money in a big way.

As to currency exchange rates, it is commonly believed that currency markets are determined by the underlying strength of each economy. Not true. Greenspan and the Treasury took action, or failed to act actually, which allowed the Dollar to fall versus other currencies. Why? To make American goods and services cheaper to other economies in an attempt to increase our exports, hence our balance of payments.

It was suggested that she return the cheque to the issuer in Calgary, asking them to exchange the money there and issue a cheque in U.S. Dollars, which she did, for a minimal exchange cost, as they do that every day in Calgary.

That was me!!

BTW, I'm not a former Canadian! lol Still wear that Maple Leaf with pride even though I live in the US. I have absolutely no intention of becoming a US citizen.

As for the money I got from Canada. B of A wanted to charge me something ridiculous like 22% exchange rate for the cheque, although they couldn't guarantee the rate as it would be converted when the funds cleared, god knows how long down the road. Sure, turn over a 25K chq and close my eyes to see what the exchange would be. No thanks.

However, cash was at a much more favourable rate. Had it been $25K cash, I think the exchange rate was 10%. The difference was ridiculous. I told the guy, look, I'm depositing $25K. Can't you give me a deal? No dice. So, I took my $22K that I got after having the cheque re-issued from Canada in US funds and deposited into an MMA at USAA. We also closed our accounts at B of A shortly after that.

I thought B of A knew what they were doing.

Actually - I guess it looks as though they do!

What did they charge in Calgary - 1% or less?

By the way - you owe me a dinner over that deal!

Hope things are going well with you and yours.

ole joyful

about US99 cents.

Bank rate slipped on Tuesday, now is about 0.25% lower than the U.S. Fed rate, so money is moving to that side of the border.

Money moves over the border easier than people.

ole joyful