Because Government of Canada is exercising the same old trick decade ago … Makes Loonie Cheapies !
Weaker loonie does more harm than good
Remember, Loonies was once at par with the Greenbak, and then it become cheapened all the way to 0.60 to a buck for God long how long … two decades ? And now, it looks like it will once again go toward that direction, it will become 0.50 to a buck ?
This government has to go ?
Weaker loonie to do more harm than good for Canada’s economy? Apparently the answer is yes.
Cheapenization of Loonies
The Canadian dollar dropped below 90 U.S. cents this week—something that hurts Canada’s economy more than it helps.
This is according to a new analysis by the Fraser Institute, called The Economic Consequences of a Lower Canadian Dollar.
“It’s a myth that devaluation of the Canadian dollar broadly stimulates the economy and leads to prosperity,” argues the author of the analysis, Philip Cross, former chief economic analyst for Statistics Canada. “In fact, a weaker loonie triggers higher domestic prices, which hit consumers in the wallet, and higher importing and financing costs, which hurt businesses and government.
Fraser Institute: Weaker Loonie Hurts Canadians More Than It Helps
For instance, certain commodities, such as gasoline, are priced in U.S. dollars, so when the loonie drops, Canadians pay more at the pumps.
Cross also predicts that the cost of doing business here will increase. “Business firms import 55% of their machinery and equipment, the type of investment most likely to propel productivity growth. Faced with higher prices, firms will trim their outlays for machinery and equipment, which ultimately will depress productivity and workers’ future wages.”
Additionally, he says, Canadian governments will pay more when managing debt denominated in U.S. dollars, particularly provincial governments and their utilities (i.e., natural gas, electricity), which issue the greatest number of bonds denominated in non-Canadian currency.
However, Cross concedes that in some cases, there are benefits, albeit limited, to having a weaker loonie. Canadian exporters benefit from a lower exchange rate because they exchange goods for U.S. dollars.
“But even for exporters, the benefits of a lower exchange rate are likely to be limited, because market demand is the primary driver of exports—not the relative strength or weakness of the loonie,” Cross says.
Moreover, exporters may rely too heavily on a depreciating dollar, which can lead to investments that only make sense with a weaker loonie, Cross warns.
Canada’s natural resource industries should benefit most from a lower Canadian dollar. Oil and gas firms, for example, export much more than they import, so a weaker loonie will boost their bottom line.
And for individual Canadians, anyone invested abroad will get more Canadian dollars when those investments are brought back home.
Weathering the falling loonie
“But this is a dubious benefit to the Canadian economy because it rewards people for not investing in Canada, and consequently, lowers the value of all assets in the country,” Cross explains.