If I asked you the question... "What are the general long term trends in the currencies of the U.S. and Canada?"...
the answer would seem easy. The resource based Canadian 'loonie' is going up and the U.S. greenback is heading down.

The answer seems simple. I would have said the same thing until a year ago.

You would be foolish to argue that the nominal value of the Canadian dollar has decreased versus the $USD. However, if you look at the value of the U.S. dollar index in Canadian dollars (i.e. measuring the $C using a floating $USD value) you would find that since last December, the $C value has decreased by about 3% during a time of high commodity prices. Sure economists will argue that exchange rates are more complicated than my simple analysis, but I maintain that the exchange rate is being held down in order to 'protect Canadian business' and in the process importing U.S. inflation.

To compound these problems, the recent stall in the Canadian economy has potentially delayed an increase in interest rates. Inflation and a slower economy? Sounds like stagflation to me.

I suppose that the most insidious aspect of this scenario is that most people I talk to from Canada seem to think that they are somehow more fiscally/monetarily responsible as a country... all the while ignoring the fact that if their central bank tries to get in the way of the exchange rate rising too quickly, they will be following the same sort of dubious policy as China.

Anyhow, the upshot of this musing is that Canadian individuals and families will need to protect themselves against the same sort of inflationary forces that are taking hold in the U.S. right now. How? That will be the topic of another musing but for now I would recommend reading a small book by Adam Fergusson called "When Money Dies". It is a history book... not one on personal finance. It shows in detail the plight of people in the Weimar Republic during their hyperinflation and any sensible reader could conclude, thanks to a historical 'rear-view mirror', the sorts of things they can do to protect themselves.

(Note: The answer is not BUY GOLD NOW!!!! WE"RE ALL GOING TO DIE!!! ... it's one thing, but one thing of many... and yeah yeah... I'll quit this doom and gloom stuff at some point and get back to writing about mining juniors.)

Questions and comments are always welcome


Some interesting articles...

"As factories stall, imminent rate hike less likely"

"Loonie hits 3-1/2 year high"