Sorry, there is no particular value the Canadian dollar ‘should be’ worth

Mike Moffatt on P.P.P. (Purchasing Power Parity) and B.S.

by Mike Moffatt

(Getty Images)

In my previous post, “A high dollar means higher wages, not lower prices,” I discussed how a Canadian dollar that is well above its Purchasing Power Parity (PPP) level has led to higher wages for Canadian workers. I briefly mentioned that the C.D. Howe Institute’s Chris Ragan was correct in stating that PPP does not represent a fundamental value for the Canadian dollar. However, as pointed out by a number of readers on Twitter, I did not explain the reasoning. As a follow-up, here is why the “true” value of the Canadian dollar is not US$0.80 and, in fact, the Canadian dollar has no value that it “should be.”

A typical argument that the Canadian dollar is overvalued based on PPP goes something like this mashup of several conversations I’ve had on Twitter:

Only a market fundamentalist would believe that market prices are always right. Sometimes the market gets it wrong; think of everything from condo prices to tulip mania. Speculators/commodity prices/overseas bond investors have driven the Canadian dollar up to a level that isn’t supported by consumer prices. A 95 cent dollar is out of line with basic economic fundamentals. Look at consumer prices, which are much higher in Canada than in the U.S., as shown by an 80 cent PPP.

It is a bizarre argument for it assumes away. If we think market prices can be wrong, then why on earth would we treat PPP as necessarily correct, since it is based on a basket of market prices? PPP is a comparison of consumer price indices. The largest component of the consumer price index in Canada is shelter, which is hardly immune from the machinations of speculators. The idea that market prices “can’t be trusted” is as a pretty solid argument against using PPP as a fundamental value for the loonie.

There are a number of other hidden assumptions. This idea of PPP as the true value of a currency is based on arbitrage opportunities and is formulated in a concept known as the law of one price. Suppose the Canadian dollar is “overvalued” relative to PPP, so the Canadian dollar price of a widget is higher than the equivalent U.S. dollar price. If widgets are cheaper in the United States than in Canada, there are profits to be made in buying widgets in the U.S. and re-selling them in Canada. The buying up of widgets in the U.S. causes their price to rise. The “price” of the U.S. dollar rises as well (meaning the Canadian dollar falls), since you need the currency to buy U.S. widgets.

The dual effects of the rise in the U.S. price level and the fall in the Canadian dollar causes PPP and the exchange rate to converge. Note this is different than saying the exchange rate falls to the PPP level; convergence could happen instead by U.S. prices rising to Canadian levels and the exchange rate staying unchanged. So we need to tack on some reason as to why the price of goods shouldn’t change through arbitrage.

Beyond the assumption that consumer prices won’t change, there are all kinds of real-world frictions assumed way in this analysis. There are no transportation costs in moving the goods. Goods do not spoil in transit. There are no transaction costs when purchasing or selling the goods. There are no tariffs and no regulatory uncertainty when importing. There is no fiscal or monetary policy, or at least there are no policies that respond to changes in the currency and/or the price level.

In other words, we have to assume away all the reasons why no one in the real world is buying Big Macs in Bangalore to sell in Bergen, despite the currency deviations in the Big Mac Index. Professional economists are often criticized (and often rightly so) for the overuse of simplifying assumptions in their models. So when your analysis has enough simplifying assumptions to make an economist go pale, it’s time to re-think your model.

If the PPP level is not the fundamental value for the Canadian dollar, then what is? The truth is, the Canadian dollar has no inherent fundamental value that it should be.

Like in so many other areas, satirical website the Onion came closest to the truth when it called money a “symbolic, mutually shared illusion.” The Canadian and U.S. dollars are both fiat currencies; the greenback, for example, is not worth 22.5 grains of gold or 270 grains of silver or some other value measured in commodities (that is, not until the U.S. reverses the Crime of 1873). To illustrate, there is a well-known Milton Friedman lecture on how a 5-dollar bill is different than a random piece of paper. A version appears in Free to Choose:

Whence the difference? The printing on the $5 bill gives no answer.  It simply says, “FEDERAL RESERVE NOTE / THE UNITED STATES OF AMERICA / FIVE DOLLARS” and, in smaller print, “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.”  Until not very many years ago, the words “WILL PROMISE TO PAY” were included between “THE UNITED STATES OF AMERICA” and “FIVE DOLLARS.” That seemed to explain the difference between the two pieces of paper.  But it meant only that if you had gone to a Federal Reserve Bank and asked a teller to redeem the promise, he would have given you five identical pieces of paper except the number 1 took the place of Abraham Lincoln’s.  If you had then asked the teller to pay $1 promised by one of these pieces of paper, he would have given you coins which, if you had melted them down (despite its being illegal to do so), would have sold for less than $1 as metal.

The same logic can be applied to the Canadian dollar. If the loonie has a fundamental value, it is the 75 grams of steel contained in 20 nickels. Of course, if we believed the fundamental value of the dollar is the metal contained in coins, then the Canadian dollar was massively devalued when the penny was abolished (220 grams of steel in 100 pennies). The idea that we should measure the true value of the Canadian dollar based on the steel content of the nickel is ridiculous, but it has more basis in fact than any other measure of the loonie’s fundamental value.

None of this should imply that fiat money is extraneous or unnecessary, as it serves vital functions as a medium of exchange, store of value and unit of account. Even more importantly, as Narayana Kocherlakota pointed out with the title of one of his papers, “money is memory.” As Friedman put it in Free to Choose, “Though the value of money rests on a fiction, money serves an extraordinarily useful economic function.” Furthermore, none of this should imply that the exchange rate relative to the PPP has no economic consequences. If money truly is memory, why would we assume that Canadian memory should necessarily be worth 80% of its American counterpart?

There is little value in debating what the value of the currency should be.  Rather there are two questions we should be asking:

  1. Is the Bank of Canada’s actions appropriate given its mandate?
  2. Would Canada be better off if the Bank of Canada had a different mandate?

The second question is the important one, as slight changes to the Bank’s current policy stance will not lead to significant depreciation (or appreciation) of the Canadian dollar vis-à-vis the greenback. Given the value of monetary policy continuity and the associated inflation cost that would come from a mandate that would directly (or indirectly) lower the value of the dollar, there are no obvious reforms that solve more problems than they would cause.




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Sorry, there is no particular value the Canadian dollar ‘should be’ worth

  1. “It is a bizarre argument for it assumes away. If we think market prices can be wrong, then why on earth would we treat PPP as necessarily correct, since it is based on a basket of market prices? PPP is a comparison of consumer price indices.”

    This argument is ridiculous. For one, PPP is used to make international comparisons of GDP. It’s certainly a good measure to determine if a nation’s currency is overvalued.

    Second, according to the Dutch Disease theory, a resource boom can cause the currency to become overvalued. (Our currency rose 60% in value since 2003.) The market distortion only affects the value of the currency not the market price of everything else.

    Third, the argument that the market is either 100% right or 100% wrong is absurd.

    Fourth, the rise in unskilled-labor wages from 2004 to 2010 was founded on construction and resource booms. But the construction boom is coming to an end. Harper is trying to drive down wages in the resource sector with temporary foreign workers.

    The overvalued dollar also drove up wage costs which has killed over 300,000 manufacturing jobs. This puts a downward pressure on wages for value-added exports. So there isn’t enough data to proclaim the overvalued dollar increases or decreases wages. Not yet.

    The overvalued dollar certainly benefits snowbirds, cross-border shoppers and the rich. But we are paying over 20% more for goods than the US with equal dollars. Are most people 20% richer than we were 10 years ago? I highly doubt it.

    • The market is never wrong for long and has a lot more legitimacy than a liberal-statism debt ponzi scheme economist.

      I trust millions of investors before I trust academics on the public dime and bloated statism government. Even when I lose money on an investment, when all is told I see why the market was right and I was wrong. So I learn from it.

      Fact is all Canadians benefit from a higher value dollar, as if the dollar falls, so does your purchasing power, your pensions including CPP will all by less. Government will even have more debt and taxes as costs rise and they pass it on to you, your kids and grand kids.

      A weak devaluing currency is a nose dive to the bottom mentality.

      Remember, 80 cent dollar pays 25% more for gas plus GST/PST. It has a negative amplifying effect. Lots of non-G8 countries doing quite well and ALL have solid value holding currencies. I know, I now add all new money investments exclusively offshore for better returns and less currency value risk. Canada is a negative value economy on average as average returns are below inflation plus taxes plus currency devaluation.

  2. The Big Mac Index is a circular argument, something I recognized around 1986. Let me explain in a little ditty:

    Two all beef patties, special sauce, lettuce cheese, and a local price set by economists at US head office. ♫

    • It’s not intended to be a serious metric, but even still how do you explain deviations from ‘fair’ Big Mac prices from exchange rates?

      • Replied below. Sorry, posted incorrectly.

    • Big Mac meal deal was 89 cents in 1970. Today it is $8.90, in less than 40 years it will be $89. Its called inflation tax.

      Say you bought $35 gold ounce in 1971, today it is $1300+-….

      Every bit of this inflation removed value from pensions and why almost every pooled pension scam is under water. Money does not have an immutable value, it is a exchange marker and a poor investment in itself.

      Why lend money to others when the return is below inflation+taxes+currency devaluation? I call this negative value investing and why most people don’t make money, they ignore economic reality.

      Myth: CAD appreaciated to USD par in the last decade.
      Truth: USD devalued faster than the CAD to USD-CAD par, but less value in non-G8 countries.

      Most Canadians still believe in the myth and are easily deceived by propaganda. Fact is on average Canada is now a negative value economy, so is the USA, Japan, UK and corrupt ponzi debt fraud G8 countries of liberal-statism economics.

  3. I discussed how a Canadian dollar that is well above its Purchasing Power Parity (PPP) level has led to higher wages for Canadian workers.

    And I replied (in essence) that higher wages for Canadian workers made it possible for retailers to sell goods above PPP level. Obviously, one is less likely to gripe if you can afford not to.

    • If one looks at the inflation rate over the past 20 years, it has not been affected by the roller coaster ride the Canadian dollar has taken. When the dollar dropped down to 63 cents, there was no high inflation from US imports. What happened was businesses had to move inventory and took a cut in profits.

      Subsequently when the dollar rose by 60% over the past decade, again prices remained the same (something in Canada selling for $1.20 CAD, sold for $1 USD in the US.) There was no deflation. (And no, the Bank of Canada didn’t take any action to tackle deflation: it simply didn’t exist.) What happened this time? Since businesses will charge what the market will bear, they could get away making a higher profit.

      So some people are benefiting from a high dollar. But it isn’t the average Canadian.

      • Ron, I think you may have that backwards. The dollar went on a wild ride because inflation was held at 2%. Did you miss the BoC’s mandate over that period?

        • The BoC has a mandate to keep inflation between 1% and 3%. It does this by raising interest rates when inflation is above target and lowering interest rates when inflation is below target.

          But just because something is theoretically possible does not mean it actually took place. If one takes a close look at inflation and actions taken by the BoC between 2003 and 2008 when the CAD rose 60% in value, the fact is there is no sign of deflation or any action taken to counter deflation.

          Theoretically the BoC could be responsible for the Canada/US price differential remaining the same from 2003 to 2008 despite a 60% increase in the CAD (and by price differential I mean, something costing $1.20 CAD in Canada cost $1 USD in the US.) But the fact is there is no smoking gun: no evidence the BoC took any action to counter deflation.

          So the best explanation is that businesses could get away with charging more (in USD) because of the increased purchasing power. When purchasing power was weak due to a weak CAD, businesses had to move inventory and take a smaller profit.

        • Actually, one of the few things BOC did do right is not let the CAD devalue as much as the USD did. Two charts to ponder to the worlds second larges, soon to be largest economy and currency:

          http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

          http://www.xe.com/currencycharts/?from=CAD&to=CNY&view=10Y

          And the difference is why Canda had a easier rid down than the US did. Bernanke devalues money, then people get less goods and less services as well as less jobs. Bernanke kicked USA into the depression and why Bernanke can get USA out of a depression.

          Government can’t solve the problems as government is the problem. Or government cost more than we can support, so it will come to us as inflation tax over time.

          Lower value money means a lower standard of living as money will not buy as much stuff. Just that corrupt politicians and union idiocracy likes to deny reality.

      • Ron,

        The bank of canada controls the money suppy to achieve a target rate of inflation. They absolutely, positively, explicitly, as a matter of policy, took action to avoid deflation. The Canadian money supply

        http://www.tradingeconomics.com/canada/money-supply-m3

        Between Jan 02 and now, it has almost trippled the canadian money supply (a highly inflationary action)

        • Yes, the BoC targets 2% inflation, or a 1% to 3% band. How does it achieve this target? With interest rates.

          When inflationary pressures arise, the bank raises interest rates to dampen economic activity. When deflationary pressures emerge, the bank cuts interest rates to stimulate the economy.

          (Forget the money supply. It grows exponentially, keeping pace with the economy. It’s growth has nothing to do with any *actions* taken by the BoC.)

          To find out what actions the BoC actually took, one has to go back to Trading Economics and look up: Canada and US inflation history, and Canada and US interest rate history. Say 2000 to present. We’ll deal with the 60% rise in the CAD from 2003 to 2008.

          It should be noted a steep 60% increase in the dollar should bring about strong deflationary pressures. If the BoC dealt with them, there would be a significant cut in interest rates.

          In 2001, both the BoC and US Fed cut rates sharply to deal with the 2001 recession. From Feb 2002 to Apr 2003, the BoC briefly raised interest rates to counter a spike in inflation. (The Fed didn’t.) Rates fell back to 2% by Mar 2004.

          From Mar 2004 to Jan 08, the BoC and US Fed steadily raised interest rates back up towards pre-recession levels. Then the financial meltdown occurred and interest rates were cut to near zero.

          Clearly, there were no strong deflationary pressures during this time. And the BoC did not “absolutely, positively, explicitly” cut interest rates to counter any deflation.

          The most plausible explanation for why the Canadian/US price differential remained the same despite a 60% increase in the CAD, is that increased purchasing power increased demand, which increased prices (in USD) keeping the price differential the same: something that costs $1.20 CAD in Canada costs $1 USD in the US regardless of the value of the CAD.

          • BoC lies about inflation Even their own numbers don’t add up to reality. Sure, their lips say 2% inflation, but real inflation is about 7%. But if they disclose reality, every union in the country will go ape and labour price pressures go up adding even more inflation.

            I dare BoC/StatsCan to show in detail how they calcuate inflation. As they don’t include big ticket items like homes, cars, insurance, taxes hidden and visible….you know, the big stuff. Sorry, the country doesn’t live on cheap bananas and KD….

            Ottawa is about the art of deception. Keep the tax slaves deceived and why your pensions are asking for more and paying less….its all about deception and governemtn statism managing the people like sheep.

      • So some people are benefiting from a high dollar. But it isn’t the average Canadian.

        The emergence and exponential growth of Dollar Stores serves this neglected market niche and would reflect, more closely, the economic theory about PPP/exchange rates. This is where competition by price would be most acute, I would argue.

        • I was at a dollar store yesterday, as a matter of fact. Bought two $3 extensions cords. A $3 paper towel rack…

          • Use one extension cord between two nails as a towel rack when not in use.

        • Wrong, 80% loonie means 25% higher prices. That is a fact. Zimbabwe took the lower value currency approach and ended up bankrupt. The value of the link below is as the same as a sheet of toilet paper:

          http://en.wikipedia.org/wiki/File:Zimbabwe_$100_trillion_2009_Obverse.jpg

          Issued in 2009, they printed so much for debt that it literally became worthless. People who held the money watched its fiat value evaporate. Now, its only a collectors item and no longer honored as currency as people jsut used another more stable currency.

          Fact is non-G8 countries witha stable currency value and no religious/political conflicts are doing much better than the G8 countries.

          CAD didn’t rise, it didn’t fall as fast as the USD:

          http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

          Stop listening to BSing Canadian liberal-statism economists and you will make more money.

      • Relative to who? Chinese Yuan has a larger currency float now than the USD does. Media never quotes outside of G8 ponzi debt fraud currencies for a reason. Fact is all G8 currencies have been rapidly devaluing to the rest of the world. I call these negative value economies of pyramid debt and currency fraud. its why your pensions are needing more and paying less, as investing in money is foolish today as returns are too low.

        Average Canadian benefits from a strong currency as they get a bigger value in purchasing. A 80% dollar also means 25% increase in prices as I can assure you Canada is far too small in the world pictures to do price setting.

  4. It’s not intended to be a serious metric, but even still how do you explain deviations from ‘fair’ Big Mac prices from exchange rates?
    I understand the concept (PPP), just think the ubiquitous (somewhat) Big Mac is a poor metric because a number of outlets are either company owned or franchises, meaning costs and prices are set by head office, along with advertising, local products (if I’m not mistaken, seems to me Burger King in US would allow McDonalds to do all the market research and then simply place an outlet around the corner).
    Depends upon strategy for a given country. I suspect the first few McDonald restaurants in Beijing, for example, probably catered to the higher end consumer (higher prices) as opposed to competing with a noodle shop around the corner where meals are much more affordable. I’d have to research to confirm.

  5. Yes, the PPP nonsense should have been thrown in the garbage can years ago. It is nothing more than a purely academic concept, with no basis in reality. Yet various economists will still cite it when attempting to argue that a currency is over or under valued, as though the only “correct” value is one where absolute PPP is achieved. PPP is right up there with “equilibrium” when it comes to economic artifacts that should be abandoned.

    • Free-market ideology is an artifact that should be abandoned, given all the damage it has done. Economics should be about science, not misanthropic superstition.

      • Macroeconomics is not, and never will be, a science. Until recently (up to the 1930s) economics was rightly a philsophical pursuit. It only achieved the veneer of science in the post war era when economists like Samuelson started pushing increasingly complex models masquerading as “mathematical rigour”. The models, of course, presume a level of mathematical precision that simply does not exist. It never will.

        • Clearly, mathematical precision is not a requirement for a field to be a science.

          The purpose of macroeconomics is to find the most efficient way of allocating resources to create the most prosperity.

          When the free-market neo-cons sold the public their economic vision of smaller government 30 years ago, it was predicated on the idea that “government was the problem” to an economy suffering from stagflation. They said free-market ideology was the cure. It would “create jobs” and wealth and turn the economy around.

          Of course, the free-market counter-revolution (to the post-war Keynesian revolution that created modern living standards) ended up creating bigger problems that existed before and the period crashed and burned in a global economic meltdown.

          So yes, we do need to make macroeconomics a science to ensure government implements policies that work. But don’t worry. Conservatives reject all forms of science now, so they can reject macroeconomics after it becomes an established science.

          • gold standard. problem solved.

          • Ironically yes. As the G8 economies of ponzi fraud pyramid debt are failing because their currency electronic counterfeit is rapidly depreciating the value of fiat currency.

            This is the fundamentalist flaw in liberal-statism economics, money has no guaranteed value. Just print more and dilute the currency as a inflation tax. Trouble with inflation tax is people who have lower value money acquire less goods and services. And that means less jobs and lower pay for those that have jobs.

            But with gold, you can’t lend what you don’t have so fraud is gone. So is inflation tax as the effort of getting gold has changed little over the decades. Gold in hand has a relatively constant value. In Roman Empire times, and ounce bought a top notch toga, saddles and adornments, pretty much buys a top line business suit, loafers and shirt today.

            In WW II, 1933 currency devaluation, and German currency failures those that owned gold came out laughing. Those with paper fiat money used grocery carts to carry money to the store for food as it devalued so fast.

            Gold, oil, stuff the governemtn and bank fraudsters can not fraud with are your best bets in long term storage of money value.

            Imagine if you bought 1000 ounces of gold in 1971 for $35,000….today it would be worth $1,311,000. Gold didn’t go up in price, the value of fiat fraud money went down in value.

      • Or slash governemtn to 20% and let people have more of their own money to drive the economy. Liberal-statism type economists and idiot thing ignore the negative impact of hyper taxation for wasteful stuff like defective F35s, rusty subs and bailouts of banks and corporate welfare. Lets illustrate how government damages the value of our labours.

        I make $100 in wages, 40% goes to income/employment taxes. Another 10% fro property/utility taxes. Then I buy gas for the car that is more than 40% taxes. So I earned $100 for $30 of gas tax out in one order of income/spend.

        Governemtn get 70% of the value, I get 30% of the value so I can drive to work and pay even more taxes.

        Same reason why dental in say Panama is less than 1/2 the cost of Canada. With all the hidden and realized taxes behind an hour with a hygienist, you pay much more. And you have to earn more as you are getting less value for the money.

        Really is about statism greed. Even if you tax 50,000 people a $1 to make a useless non-value added job for $30k, as governemtn needs its GA skiming, you have only reallocated wealth and produced nothing as collectively, $50,000 isn’t available for productive workers and thus a job of lower value created in one place is at the expense of a productive job elsewhere.

        All government can do is confiscate wealth for redistribution and consumption government. Prey on people ignorance for a vote as the whole concept of governemtn creating wealth jobs is a total myopic farce.

        Show me the top 20 performing economies in the world and every one has a lot less government. But media loves only talking G8 pyrmid debt and currency fraud economies, but meanwhile they ignore Asia economic superpower and emerging Central/South America which is generally doing quite well compared to G8 debt fraud economies.

        But hey, liberal-statism economists do love their BS as it is government propping up their inflated wages and for sale idiocracy.

  6. How many German lagers can be bought with an ounce of gold is another interesting metric with little in the way of practical use. I like it better than PPP because I like any sort of metric that includes beer.

    • Comparing PPP to the gold standard is ridiculous. Economists use PPP to compare international GDP.

      • So it is a rather useful yardstick then. That does not mean that maintaining PPP between currencies should be seen as a policy goal. That’s attempting to make reality fit the model, simply because the model says so. I have my own reservations about free-floating currencies, but since we’ve got them, we probably shouldn’t be trying to manipulate their value to achieve higher exports, or any other policy goal. Currency value should be seen as perhaps and indicator or weathervane of underlying conditions, not a policy lever to be toyed with.

        • Yes, no country should manipulate its currency to achieve higher exports (mercantilism.) Of course, that is not the issue here. We have a currency overvalued by 25%, which is putting a de facto 25% tariff on exports (obvious terrible macroeconomic policy.) So we need to revalue our currency to correct the market distortion to ensure we neither have an export advantage or disadvantage.

          Since it is established knowledge a country can get an unfair advantage by devaluing its currency, clearly a country can get saddled with an unfair disadvantage if its currency is overvalued.

          No doubt free-market true-believers think there is no such thing as a market distortion. But one might as well believe in the tooth fairy as to believe that nonsense.

          • One could just as easily argue that our exports are suffering not so much from an overvalued dollar now, but because the dollar was so “undervalued” in the 1990s, that we became dependent on a weak loonie to drive exports and growth. “Cheap” currencies tend to provide a very substantial boost to exports, and thus employment, but make imported capital more expensive by the same measure. This can lead to obselesence and woefully uncompetitive industries.

          • The value of currency is irrelevant, the stability of currency is very relevant. Building a good economy on a depreciating unstable currency is like building a home on a earth quake.

            Say you get a 80% loonie, then what? You also get a 25% increase in material costs, and price inflation means fewer consumers of your products. You still get less jobs and infaltion devaluing your standard of living.

            Take Japan, as they have been electronic counterfeit for debt now for 2 decades. Over that time their standard of living has dropped in half. A currency chart on Japan’s loss of value:

            http://www.xe.com/currencycharts/?from=JPY&to=CNY&view=2Y

            Yep, lots of inflation for Japanese over the last 2 years. Ditto USA:

            http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

            Bernanke in 2006 gets in, prints money for ponzi debt as no legitimate lender lends money to the US Treasury any more, then a credit crisis in 2007 as no one sane lends money below inflation+taxes to lose value, then 2008 the system crashes. A hidden secret liberal-statism economists ignore.

            If Bernanke was on the ball, he would have raised interest rates but fact is governemtn intended to go debt spend crazy. But the liberal-statism types love ignoring reality that government debt and currency caused the depression.

      • Not at all. Gold, oil, food, housing all did the same thing. Costs didn’t go up, the value of money decreased. Effort/value to build a home in 1970 isn’t as much different today as it was back then. But money has lost value.

        Its why I don’t lend money any more, with returns below inflation+taxes it is a negative value investment. Its why pooled pension plans public and private want more money and paying less…as their fixed income assets are depreciating in value. It is the fraud of low interest rates causing the issue. Debt is never free or low, it is a mater of who and how it is paid for. Me, I call it inflation tax as in fact that is how it works, a annual compounding inflation tax on money that depreciates peoples incomes and labours.

        If you are in your 20s, buy gold for long term savings as G8 fiat currency is losing big value when compared with the rest of the world.

  7. Good lord. Did any of you actually read the original post? Because it’s pretty clear you didn’t understand it.

    • Economics stupidity is a rampant issue even with economists. Not much real value in this story at all.

  8. The whole process is flawed to BS the people. Lower value money must increase costs unless the Canadian economy is prepared to operate ina 100% vacume and BoC ceases fiat money print for debt fraud.

    Money depreciates as the BoC prints too much money for debt. Money is like stock, if diluted it buys less stuff and treanslates in common terms to inflation. People who get less goods and services for the money will employ less people as less goods and services.

    Map the world in currency and economic problems and it becomes clear, the economy is as healthy as the currency. Weak currency causes a depression effect, causing under and unemployment.

    Fact is people with less value money or more taxes will consume less and that means less jobs.

    Fiat money has no guaranteed value, it is a perpetually depreciating asset due to fit money print fraud. Or call it a ongoing and compounding inflation tax on incomes, pensions, savings and RRSPs.

    If your returns on an investment are not real inflation + taxes you are losing value even though you appear to make money. If I get a 1% taxable return on a CD/GIC/Bond/MortgageFund, and _real inflation is 6%, then I am more than 5% loss in purchasing value.

    Its why since 2006 I don’t own any instrument that lends money. When interest rates inverted on inflation, you knew 2007/8 was coming. And why I was largely in idle cash for the 2008 crash.

    Hey, why invest creating jobs in a depreciating currency, depreciating economy shrinking in value, for returns below inflation + taxes to loose value? Its like asking workers to go to work for negative value returns.

    These so called economists are biased, loaded with idiocy, directly or indirectly paid puppets of governemtn propaganda. And why I made money on 2007/8/9 while people lost big. Even Ron Paul predicted 2008 but did so in 2004 and was scoffed at by political propagandist liberal economists. But he (and I) were right. A debt fraud economy decreases in value. So does the currency:

    http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

    Media should seek out economists that don’t deny reality for a statism pay check.

  9. Let us put this in simple terms. If people have 80% value money they will spend 20% less and cause unemployment. Employers will not pay more as a ton of steal your company needs as feed stock top produce stuff just went up 25% plus more GST/PST!!!!

    Lower value currency is a race to the bottom mentality. You end up with less value wages, less value retirement incomes driving OAS/GIC and welfare pressures, you end up paying 25% more for stuff as you 80% dollar is weak.

    Myth: CAD rose to the USD in the last decade.
    Truth: USD fell more than the CAD did.

    I watch the largest currency and soon ot be the largest economy int he world, China. Ya, we love bashing China but they are growing at 7% or more a year while we shrink in world share. Media doesn’t report this as back room powerful want to discourage reality of the G8/currency and debt fraud failures being realized.

    Canada faired better than USA as our currency wasn’t as weak. But the liberal-ponzi-debt fraud economists refuse to acknowledge reality. Its all about deceiving the public and propelling the myths for statism governemtn tax greed.

    But why people like me make money. I saw 2008 coming and had a lot of cash to buy stocks cheap and make off like bandit. But then I don’t trust ore put much credence into economists working for or indirectly for government.

  10. Value of fiat money is like approximations towards zero.

    Its future value approaches zero because of inflation, and inflation is caused by governments creating too much money that dilutes currency. And lots of dilution going on. Money is like stock, double the stock float and each share is worth 1/2 as much.

    But inflation/devaluation is a sly way of screwing the public. It devalues wages, incomes, pensions and savings. Take banks which return a negative value for having money.

    If last year I lent $1000 and get $1010 this year with a taxable 1% interest my yield is say $1007 after taxes. But wait, real inflation is running at 6% so to buy the same stuff as last year need $1060. That leaves me with a $53 value loss per $1000.

    I call that negative value investing. But so few bankers and advisors will talk about the pension, savings, income risks of inflation and negative value investing. But it is a huge risk.

    Also the deception of comparing CAD to only USD when Asia is now the largest economy of the world and China is clearly #2 in the country rank. Chinese Yuan by USD dollars is actually now more of a reserve currency than depreciating USD. But again, bankers, politicians and media like to ignore comparisons to China and non-G8 banking corrupt countries of debt.

    Back in 2006 people like Bernanke convinced G8 countries to print no-value money for debt, so all currencies floated together. But to the non-G8 world, USD/Euro has lost value.

    And lower value currencies just make it worse. In fact if you overlay the world with currency depreciation and economic problems, you will see there is a solid relationship between lower value money and economic problems.

    Lower value money means inflation. 80 cent CAD means 125% cost increases. Lower value wages mean less value for your efforts. Employers buying goods for 25% are not going to give wage increases to keep up. It is a urban myth that lower value currency is good, what it really does is a race to the bottom mentality.

  11. You describe as ludicrous the estimate of the value of a dollar by melting down the coins and trading away the metal. Well, many a German last century could only value their worthless paper money by the value of the paper as a cooking fuel. May we never get to that point, where enough people realize the worth of our cash relies on mass trust in the sham.

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