The loonie returns to earth after a long flight of fancy | rabble.ca

Posted: January 17, 2014 in Canadian Politics, Economy
Tags: , , , , , ,

The loonie returns to earth after a long flight of fancy | rabble.ca.

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Ha. So much for the Harper Government’s vaunted claims to be exceptionally good economic managers. What they have done is drive at least 500,000 good manufacturing jobs out of Canada by supporting the over valued Petro-Loonie as the basis of our economy. They have also driven tourists away. Their ideologically-based self-delusion knows no bounds. Read and weep for what we have lost as a result of faith-based right-wing economic lunacy. The Jackass movie producers next project should be called “Bad Harper.” Thanks Jim Stanford for once again standing up for the working people of Canada. Peter G.

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Jim Stanford By Jim Stanford

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The long-overdue depreciation of Canada’s currency is gathering steam. The dollar lost 8 cents against its U.S. counterpart, in fits and starts, over 2013. It’s lost another 2 cents since the start of 2014, and negative sentiment about the currency is accumulating among financial analysts and traders.

Indeed, once the expectation that the loonie will fall becomes entrenched among enough of the red-suspendered trading set, that belief quickly becomes self-fulfilling. Speculators who think the loonie will fall, sell or short the asset to take advantage of that fall, and this only accelerates the decline. So we can expect the dollar to continue weakening — perhaps faster and further than would have seemed possible until very recently.

On this week’s CBC Bottom Line economics panel, I thought I was going out on a limb with my bearish prediction that the dollar would be in the mid-80s by the end of this year. But then I was trumped by Patti Croft, former RBC economist (who once was very bullish on the loonie): she said it could reach 80 cents in “the blink of an eye.”

The present downturn is a welcome, but overdue, reversal to a decade-long, pointless, and destructive financial detour for our currency. From 2002 through 2007, the loonie shot up over 60 per cent. For the next five years it bounced around par with its U.S. counterpart. Now, finally, it is heading back down.

At or near par with the U.S. greenback, the loonie was substantially overvalued by any fundamental measure. The most common way to estimate the “fair value” of a currency is according to relative price levels in different countries (what economists call “purchasing power parity”). On this basis, the Organization for Economic Cooperation and Development pegs the loonie’s benchmark at 81 cents (U.S.). [You can see the whole set of OECD PPP estimates here.]

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