September 22, 2007
Don't Be Loony, Mr. Paulson!
I mentioned that I was arguing with my economic betters about the recent Fed rate cut. At the recommendation of The Everyday Economist, Mr. Bernanke's book is on the way.
The weak dollar has concerned me more than other signs. Thankfully, I am not going to Ireland and the UK three times a year anymore, but I still wince at "grim benchmarks" like a two dollar pound, and the Euro exceeding its original par offering against the greenback.
But this shall not stand (paid link).
With the Canadian dollar surging against the U.S. greenback, Robert Katzman is dealing with situations they don't teach in Economics 101.The owner of five strip clubs in Detroit and Windsor, Ontario, says American dancers are heading to Canada to earn the strengthened Canadian currency, and Canadian customers are heading to Detroit because their dollars go further there. He's fighting back by advertising more in the U.S. and offering free limo service to get Detroit men to visit his Windsor clubs.
But like most Canadians, Mr. Katzman is brimming with national pride. "We're feeling for the first time like we've caught up to our big brother," says Mr. Katzman.After 31 years of playing second fiddle, the Canadian loonie, so-called because of the bird on the dollar coin, overtook the U.S. greenback this week. A nation that has long been the butt of jokes from its neighbor to the south puffed out its chest and grinned.
Let them grin, eh? And let them steal our cutest dancers. But American hockey teams have long benefited from "the 62 cent dollar," luring the best talent to cross the 48th parallel. I fear that the Senators, Flames, Canucks, Leafs, and my formerly-beloved "Habs" will now be able to keep Canadian talent.
Without economic advantage, we are screwed. I have played against Canadians. It's like junior high versus the NHL. C'mon Mr. Paulson and Mr. Bernanke -- our cup hopes rest on your shoulders!
It used to be that Canadian strippers loved American singles. (Not that I would know personally. Really! I swear.)
I've been meaning to blog about this but haven't had the time. I still can't believe Bernanke resorted to weakening the dollar further. So much for his reputation of numerical inflation targeting. I predicted he would push to leave rates alone, but he bowed to political pressure.
Notice how crude prices started rising the morning of the announcement, then rose further afterward? The typical analysis on the news is that it's because we'll have greater economic growth, and hence increased demand for energy sources. That's completely superficial. The real reason is that traders know there will be more dollars available, so buyers must offer more when bidding against each other, and sellers know they can accept more dollars (not as a matter of greed, but to compensate for higher prices on things they themselves buy). Buyers must offer more even if they're paying cash as opposed to borrowing, because eventually they'll deal with borrowed (i.e. more available) dollars. If the money supply is increased for someone, it affects everyone else.
Posted by: Perry Eidelbus at September 24, 2007 1:32 AM | What do you think? [1]