The Loonie reached par with the U.S. greenback last week for the first time since 1976, which is the result of several things happening. Some we can take credit for, others are the result of brewing trouble in the American economy.
The main factor, many economists agree, is oil. In the mid 1970s the world was in the throes of an energy crisis, raising the price of oil to the point where Canadian oil was cheap enough to mass produce. Now, 30 years later, we’re in the middle of another oil crisis, and have become a primary supplier for the U.S. market.
Americans have also watched their national debt jump from about $5 trillion to more than $9 trillion during George W. Bush’s tenure as president. Spiraling debts, deficits and trade imbalances have prompted a devaluation of the greenback on world markets, making the boring Loonie look pretty solid by comparison.
Relatively speaking, U.S. debt now stands at more than $29,740 per person, while Canada is carrying $481 billion in national debt for a ratio of $14,680 per person. Canadian debt is also shrinking, reduced by more than $30 billion over the past 10 years and we have been running a federal surplus every year since the early 1990s.
The U.S. greenback is also being dragged down by a bursting housing bubble, and a sub-prime mortgage scandal where consumers were duped into buying or refinancing their homes by taking advantage of a combination of artificially high real estate prices and artificially low mortgage rates. As the bubble bursts and people watch the value of their homes shrink, something they were told was impossible, the number of people defaulting on their mortgages has increased. Now a lot of people are paying far too much interest on homes that are suddenly worth far less than they paid, and tens of thousands of people are defaulting on their mortgages.
Canada is protected from the subprime scandal by regulation that prevents that kind of predatory lending, and by the fact that our real estate bubble has been slower to burst as a result of a strong economy.
We’re not completely isolated from what’s happening south of the border. The U.S. is Canada’s number one trading partner, and the combination of a recession, reduced consumer spending, and fewer housing starts in the States will inevitably drag our economy down as the market for wood, metals and other products dries up.
But still — parity with the U.S. dollar for the first time in 31 years is a cause for some celebration, as well as dread on behalf of companies that sell to the U.S. or towns like Whistler that rely on American guests. Parity also underlines the fact that, in some cases, Canadians pay too much for their electronics.
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