For the first time since Jimmy Carter was President, the US dollar equals the Canadian dollar. Most people know that space and time are relative, but the recent interest rate cuts show why interest rates are relative too. Finally,  despite what they all say, Big Ten football will see a comeback soon and Wisconsin (my alma mater) will lead the way.
And now the full story.
The big financial news yesterday was that for the first time since the 1970s the US Dollar and Canadian Dollar were trading at par. So, no more cheap Canadian vacations in Vancouver. Canada is no longer America Lite (as Homer Simpson once said).
What does a weakening dollar mean for America and Americans? For one thing gas should get more expensive (a weak dollar means imports rise in price). Also, Americans living abroad receiving income from the United States, like my wife’s parents, will receive a healthy pay cut. Especially if they live in Europe, since the Euro continues to get stronger by the day.
The Chicago Fed website has a very good primer on the advantages and disadvantages of a weak and strong dollar. Here is what they say about a weakening dollar:
Weakening Dollar
Advantages
- U.S. firms find it easier to sell goods in foreign markets.
- U.S. firms find less competitive pressure to keep prices low.
- More foreign tourists can afford to visit the U.S.
- U.S. capital markets become more attractive to foreign investors.
Disadvantages
- Consumers face higher prices on foreign products/services.
- Higher prices on foreign products contribute to higher cost-of-living.
- U.S. consumers find traveling abroad more costly.
- Harder for U.S. firms and investors to expand into foreign markets.
I don’t know if the advantages outweigh the disadvantages or not, but my gut (which isn’t a very big gut) says its not good to let the dollar become too weak.
Now for all those who are celebrating the cut in interest rates, consider the fact that those amazingly high yields on CD’s and money markets will soon evaporate. Just like the space-time continuum, interest rates are relative. So as you celebrate your lower HELOC monthly payment, kiss the 5% CD’s good-bye.
I’ve been listening to the talking heads on college football and they keep saying Big Ten football is in the doldrums. Here is a news flash, things change and sometimes things get bumpy. Just last year we were contemplating a Michigan-Ohio State championship. So, lets wait until at least halfway through the season folks. Plus my Badgers are on a roll. I don’t care what the experts say, but my small gut tells me, they’re going to go on a historic run this year.