Thursday, 28 January 2016

Canadian Dollar in Free Fall, Drops Below 70 Cents USD

The collapsing loonie: this is the talk of the town in Canada as I write this post. The loonie, which only a few short years ago was worth more than the US dollar, has suffered a series of attacks and is in what most would call an utter free fall, plunging below 70 cents US in value.

To find the cause of this, all one needs to do is look at the collapsing price of oil. The reason for the plunge in the loonie is simple: the Canadian dollar is predominately based on the price of oil, especially given the country’s strong dependency on the commodity.

Unfortunately for Canadians, this has and is going to cause a further increase in prices across the board because of their strong dependency on imports, similar to the Unites States.

Just like the US, Canada has hollowed out most of its manufacturing base, choosing to outsource its business and production to China. Although this has saved them money in the past, it has destroyed many of their small mom-and-pop businesses and manufacturers.

This scenario has been played out across most of the Western world, with only a few safe havens still existing. One such example is the strong manufacturing base still seen in Germany.

On its own, the increase in the cost of goods, although a detriment to the standard of living, is not the end of the world. Consumers can put off their spending and be satisfied with the functioning car, TV or computer that they have. Wants are not the same as needs.

What cannot be put off, and what is having a more immediate effect on Canada as their loonie continues to plunge, is the cost of food, which continues to see strong inflation.

With the Canadian dollar dropping below 70 US cents for the first time since May 1 st, 2003, a massive wave of citizens has taken to social media and twitter, posting images of the rising cost of food and how truly unsustainable everyday living is becoming.

Some examples of this explosion in prices are cauliflower, which is now $8.00 per head; cucumbers, which are over $3.00 each; and eggs, milk, and pepper, all of which have moved sharply higher as well.

Although there is not a crisis yet, it is not far off. As I stated in my last article, the true ramifications of this plunge in oil prices has not yet truly set in.

Once the savings and unemployment runs out for those laid off from the oil industry, then you will see the true ramifications of this plunge in oil; then you will see the true crisis.

- Source, Nathan McDonald via the Sprott Money Blog