Thursday, September 20, 2007

Bang. Zoom.

Today is epochal. I don't know if most people will see it that way, but I think today, Sept. 20, 2007, is going to go down in financial and social history. This very day, we have seen some startling indicators concerning the health of the US dollar and, by extension, the economy it represents.

Today, the Canadian dollar hit parity with the US dollar. The last time that was true was November, 1976, when I was still shedding milk teeth. This is partly due to rising commodity prices, which favour our dollar since we export commodities (particularly oil), but also an indicator of the tight monetary policy the Bank of Canada has followed for many years finally paying off. It's also due to the housing melt down in the States, and other factors undermining the US dollar.

Today, the euro hit $1.40 US for the first time since its creation in 1999 and implementation in 2002. Many people were saying that this was a psychological barrier the euro had to hurdle to be taken seriously as a potential reserve currency. It would seem that the euro has arrived. If this is seen to be the case, this will put even more downward pressure on the US dollar.

Today, for the first time, Saudi Arabia has declined to lower interest rates in lockstep with the US Federal Reserve. There's speculation that this is the first step to the Saudis unpegging their currency from the US dollar, and that may ultimately signify they're preparing to abandon their support for the policy of accepting only the US dollar in payment for oil. It's Saudi Arabia who has driven that policy in OPEC for over 30 years, and what has effectively backed the US dollar ever since. If this changes and oil becomes available on the open market in a basket of currencies, the days of US dollar hegemony will truly be over. What's worse, the US currency frozen in reserve banks around the world may become liquid again, and the value of the US dollar could truly plunge if that happens.

On the surface, it looks like just a couple of little incidents... but when you look at the big picture, it was a sobering day for the US economy, and the prognosis isn't a happy one. Today may turn out to be one of those days that the world changed while we were all too busy to notice.

2 comments:

Polt said...

Yet ANOTHER legacy of the Bush disaster.

God, moving to Toronto is looking more and more attractive ALL the time.

HUGS....

L-girl said...

It's been nearly impossible for me to understand the significance of this. Both Canadians and Americans I know are very concerned about parity. I am left wondering why. Ah well.