prevailing attitude among top officials at the Fed seems to
be that world currency markets are not ready to begin to
dump the US dollar. Prior to the invasion of Iraq, Saddam
Hussein refused to accept American currency as payment for
Iraqi oil but accepted Euros. Such action is believed by
some to have contributed to the American decision to invade
Iraq, given that no chemical stockpiles or weapons of mass
destruction have thus far been discovered in that country.
There is, however, the remote risk of some money markets
dumping the American dollar and causing it to decline
drastically in value against many other currencies, perhaps
even against the Canadian dollar.
What, then, can we make of the Rt. Hon former libertarian's
proclamation of economic recovery in view of Canada's
dependency on the US market and the decline of the US dollar
against other currencies, including the Canadian dollar?
It may only be valid over the
short term in a stagnant economy. We will agree with him
that there may in fact be a small economic bubble or
'micro-boom' that is giving off signals that mimic those of
The American economy is literally a mess and would need to rapidly
create many high-paying jobs in order to generate customers who will buy
new cars from a Fiat-Chrysler consortium and from the New General Motors
(aka, Government Motors). The Government stimulus packages in the US and
Canada may in fact create many new high-paying jobs, over the short term.
Many of these wage earners may actually buy new cars from the new GM and
Fiat-Chrysler over that short term. But deficit-ridden stimulus
packages provide no guarantee whatsoever for economic recovery over the
While the American Fed steadfastly refuses to shut off the printing
presses and raise interest rates, world currency markets may compel it
to do exactly that should those currency markets begin to dump the
American dollar. Shutting off the printing presses and raising interest
rates will definitely precipitate a major economic upheaval across the
USA and Canada. It will also provide an opportunity to liquidate the
massive malinvestment in the American (and Canadian) economy, eventually
allowing markets to generate genuine signals instead of the misleading
and distorted signals generated by ultra-low interest rates.