It was difficult choosing a topic for this month’s column because there has been so much going on in the news that I wanted to bring to your attention. But with the US dollar “dropping off the table”, I decided to do my year-end projections for 2011 a month earlier.
Since June, the US dollar has lost more than 9% which is good news if you are buying US cash to take a trip or make a purchase. But the reality is that what is happening to our currency and the economy is going to require us to change the way we think and do business with the Americans.
Much of the move in the US dollar has happened in the last month in response to an announced second round of stimulus, sometimes called QEII (Quantitative Easing 2). The first round didn’t work and the second round is unlikely to work either – so you might ask, “what are they doing?”
Bill Gross, President of PIMCO (World’s Largest Mutual Fund), gave us some insight into what is really happening when he commented recently on America’s economic woes.
“It is a globalized economy of our own doing for the past 20-30 years. We encouraged all of this, but it is coming back to haunt us. To the extent that Chinese labor, Vietnamese labor, Brazilian labor, Mexican labor, wherever it is coming from that labor is outcompeting us and holding down our economy. ……Other countries and citizens are willing to work for less and willing to work harder—and we forgot the magic formula somewhere along the way,” he said.
He went on to say, “One of the ways to get even, so to speak, or to get the balance, is to debase (devalue) your currency faster than anybody else can. It’s a shock because the dollar is the reserve currency. But to the extent that that is a necessary condition for rebalancing the global economy over time, then that is where we are headed.”
He also said later in this interview that he thought the US dollar could be devalued by as much as 20%.
Globalism is Dead
I have been speaking out against globalism for 30 years because it has killed our manufacturing (particularly in Ontario), and made a lot of multi-national corporations and their upper management unbelievably wealthy at the cost of millions of well paying jobs in Canada. In the US, it has wiped out the middle class almost completely. However, Mr. Gross, though accurate about globalism, demonstrated a total disregard for the value of our labour when he said, “we (America’s labour force) have forgotten the “magic formula”. He compares us with workers who are forced to work (through circumstances) for pennies an hour, 12 hours a day, 6 days a week. He has forgotten that we HAD built up enough wealth in the west so that we didn’t have to work day and night for a subsistence income before globalism. Now that wealth is in the hands of a few corporations. Instead of raising up those other countries to a more humane labour standard, they have devalued our labour to the lowest level possible and oppressed even the poorest of poor in order to make even greater, and greater profits. These are the people who are running the financial world who we so foolishly “invest our money with”. 95% of the world’s wealth is held by 5% of the people. There can be no recovery without the redistribution of wealth – it’s impossible. I wonder what he thinks his labour is worth???
Now that I have that out on the table, Gross did say a few other things that really matter to you and me. By devaluing the Greenback through the increase of the money supply (printing it), you do two things. You devalue the current debt of the US. (They have the equivalent debt of a person making $50k per year and owing $5M.); and more importantly, imports (from Canada) becoming more and more expensive in the US.The Canada/US exchange rate has gone from -20% to +2. Obama has assured the G20 that he would not start a currency war, but he really doesn’t have any other options. This effectively makes NAFTA pretty much worthless.
You and Me and 2011
That being said, what does that mean for you and me in 2011? The coming year will be an opportunity for Canadians to break free from US “dependency”. The US will begin to make more of their needs at home as it becomes more expensive to import products. Canada should look for ways to increase the labour component in our raw materials and there will be opportunities to develop and provide services to Canadians from the US as the value of their dollar decreases and ours increases.
The Waterloo Region will continue to invest heavily in technology as our major export. We are among the best managed and economically sound areas in Canada. We are well positioned to do better than most of the country because of our progressive, forward-thinking and creative people who will rise to the challenges of change. Innovation and creativity, on which this region was built, can turn the coming challenges into wealth building opportunities. 2011 will have its “bumps in the road” but in a world of change, I have great confidence in our creativity and innovative ability to lead and prosper.
Read the whole story here
http://www.cnbc.com/id/39957072
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See “Inside Job” the film
http://www.insidejob.com/