Canuck Economist

Has the Dollar Hit Bottom?

Good article; Purchasing Power Parity does have the US dollar as undervalued. However, the Canadian dollar remained undervalued for years until now!

I think we need to consider the fundamentals. The US is currently on or before the point that Canada was in during 1994 when the government allowed a current account, balance of payment and government spending deficits - the triple deficit. We fixed it; at the cost of a lot of economic pain to Canadians! You do not have to be an economist to understand that a country, like a household, cannot continue to spend more than it earns for extended periods of time before lenders stop lending, and God help you if they decide the want to call their loans! China needs to do its part - trying to maintain its currency on a similar track as the US dollar is in is simply untenable - they are just rising higher so the fall will be bigger; it will not be a soft landing for them if this needs to be resolved by crisis!

Bottom line, I believe things will continue to get worse in the US until the people (thus the government) decide to get serious. US citizens are very similar to Canadians, they will demand change once they start suffering the consequences of government innaction - which by the way was also worse during conservative govt here much as is happening in the US. Address the Deficits; address the structural imbalances and the govt miss-incentives e.g. agricultural; etc.

The positive side: once the going gets tough and the tough get going, you will too get back to economic sanity. Canada is now in great finanacial health - now all stripes of govt are fiscally conservative; we improved incentives e.g., employment insurance and we are now cutting taxes while running surpluses. This will eventually happen in the US also but I just do not see Americans paying attention yet. I believe the US will continue deteriorating until citizens say enough! That will be the bottom - I give this two years.