Good Luck Financing The Canadian Welfare State Without the U.S. dollar being the dominant Global Currency, The Inability To Debase The Canadian dollar spells Trouble For The Federal Government – August 1, 2022,

 

 
Let’s imagine for a moment the world was on a fixed Gold Standard; what would that mean exactly? It would mean CONSTRAINTS to government spending. I may have been guilty in the past of saying that a Gold Standard led to wars when I should have argued that political democracy leads to war. People like to hear lies and politicians love to feed people lies.

I’m personally not a believer that Gold needs to be the holy grail of money; I’m a huge fan of money being whatever the PEOPLE want it to be, including the U.S fiat dollar. But once you accept a particular medium of exchange, it’s important to understand what happens when economies are built around that medium of exchange.

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The liquidity a Laissez-faire nature of the U.S dollar have allowed countries like Canada to EXPAND their welfare States why because the U.S dollar is one of the rare currencies TO DATE in which the government welcomes you trading in it internationally. Canada and the United States have way more PRIVATE and public debt per person than Switerland, so why then does Switzerland fight to keep its currency from appreciating or being used globally?

Because if Switzerland allowed its currency to rise to its true purchasing power, the cost of Swiss labor would rise, which would make Swiss labor uncompetitive in the global economy. Why would Swiss labor become uncompetitive globally, you ask? Well, because although Switzerland is more responsible about its welfare state than most countries, it still does have a welfare state, and its welfare state is financed by propping up DOMESTIC WAGES and consumer prices.

Now, let’s imagine for a moment there’s a Gold Standard, and all currencies are tied to a FIXED gold supply, meaning no Federal Reserve or central bank manipulation of the money supply, meaning bank runs if people think the private banks are insolvent, what does that mean exactly? It means every country is on a level playing field.

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Gold standard aside, why haven’t countries switched the hoarding other currencies? It’s for the same reason I pointed out with Switzerland. Let’s say holding another country’s currency increases my DOMESTIC buying power, but it’s hurting that country’s local economy as their stronger currency threatens their competitiveness on the global stage; what happens then? Well, as we saw with Switzerland, maybe their central bank will decide to make interest rates NEGATIVE!

In countries like Switzerland and even Germany, they can handle a negative interest rate because they’re not EXPORTERS of more than one region, whereas, with Canada, we’re a one-trick pony; the Canadian economy is heavily reliant on trade with the United States, and because of the high cost of maintaining the Canadian welfare State if the U.S dollar were to crash and the Canadian dollar were to appreciate a lot of Canadian businesses would have NO REASON to be in Canada.

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Canada has a trade surplus with the U.S because, first and foremost, Canada smacks a lot of tariffs on U.S goods, meaning that U.S producers have a disadvantage in the Canadian marketplace. However, if the U.S loses its reserve currency status, all of a sudden, debt levels, as an example, might take on a whole new meaning. I like to point out that Canada has a lot of CROWN Corporations, which are State-owned enterprises.

Where the United States Post Office is considered part of the U.S Federal Debt, Canada’s equivalent Canada Post is not. Canada’s public debt on paper doesn’t look that bad, actually, it looks pretty good because Canada Post, which currently holds a monopoly although under the control of the Federal and government operates as its own entity, makes the Canadian PUBLIC sector appear a lot smaller than it is would make the forex markets look at Canada as a destination to park their capital.

But if the Bank of Canada all of a sudden is tasked with keeping the money speculators at bay because if the U.S is no longer the currency superpower, Canadian manufacturing might suffer because, as I already pointed out, Canada makes a lot of its money via its PROTECTIONIST economic policies, which helps to finance its welfare state. Imagine the U.S dollar begins losing its purchasing power rapidly.

What would happen if the U.S dollar is debased? Well, per capita, Americans are still more ENTREPRENIAL than Canadians, so a debased U.S dollar might actually become a stimulant to their economy as their exports would all of sudden become cheaper. We already know that America lets in the most immigrants per capita in the world than any other country, and unlike Canada, America does things on a State by state basis, so even if a Democrat is in the White House, it doesn’t necessarily equate to every U.S State doing bad economically, whereas, in Canada, there is a transfer payments system which rewards Canadian premiers with free money for their public sector if the post NEGATIVE economic numbers.

In America, a lot of Americans welcome a debased dollar and would probably begin hoarding other currencies themselves, which would cost the welfare states of other nations all sorts of unexpected problems that they’re clearly not ready for. Based on my analysis, people are hoarding U.S dollars for a REASON, and those reasons revolve around the U.S government’s lack of involvement in DEBASING their currency.

There are ATM machines outside of the U.S that dispense U.S dollars; where do you see that anywhere else in the world? Why hasn’t the European Union been this aggressive with their currency? The answer is simple; most countries want to CONTROL the distribution of their currency to avoid losing control of the value of their currency, whereas America has a “Let’s see what happens” approach to currency. The entire Eurodollar market revolves around there being more U.S dollars outside of the U.S than there are inside the U.S.

That would terrify the central bankers of other nations as that could equate to foreign actors having full control over monetary policies. It’s already said that Federal Reserve doesn’t control interest rates. Where this really takes on meaning is in a country’s welfare state, as the forex markets don’t tell the full story of an economy.

The Canadian dollar could be strengthening while the economy is in recession; why? Because people hoard currencies for different reasons, and if I’m a foreign actor, my reasoning for hoarding Canadian dollars may have nothing to do with the domestic Canadian economy; maybe I’m hoarding Canadian dollars because they’re STABLE!

So if let’s say the Canadian government is trying to stimulate growth and the money speculators REFUSE to sell Canadian dollars, this is how bad policies happen. The Canadian economy NEVER crashed when the U.S housing market experienced a market crash. Yet, the Bank of Canada lowered interest rates; why? Well, if you remember, the Canadian dollar began its ascension, and this threatened Canadian manufacturing which is reliant on cheap Canadian labor to turn a profit in U.S dollars.

But then there’s the flip side to this, Canada s becoming increasingly reliant on IMPORTS, so if the Canadian dollar does not remain stable, the cost of IMPORTS will rise. This balancing act Canada has been playing is heavily reliant on the U.S dollar remaining the DOMINANT currency in the world. So does the shrinking reserves countries are holding in U.S reserves equate to the end of the U.S. dollar’s supremacy? Sure maybe, but don’t assume this is a good thing for any nation of the world because the modern welfare state of the entire planet revolves around the U.S. dollar’s supremacy!

Does the ‘small’ $300B Canadian dollars held as foreign reserves signal the waning of U.S. dollar’s supremacy? | financialpost.com