We are coming to the end game of a mistake made some 40 years ago with the abandonment of the gold standard for currencies.
In 1971, the major countries of the world were on a gold standard set at $35 an ounce. To back up their paper money they had to keep gold bullion in vaults to ensure the paper denominations ‘really meant something’. Soon thereafter, to save costs of bullion storage and because of the false belief that a country’s currency is really backed by its economic health and GDP – i.e., you can trust the country to pay out its money promises as its economy could generate enough ‘ wealth’ to honour any claims against the paper currency. In good times, this fantasy worked reasonably well, but as the world’s economies have begun to implode, even central bankers are starting to rethink the need for the universally accepted ‘hard asset of gold’ -- to ensure currencies can be ‘trusted’.
For some 40 years, governments have been allowed to print money at will, run huge deficits and allow speculators (i.e., invest banks, regular banks, oil rich national wealth funds and individual multi-billionaires) to play the currency exchange game at the cost to ordinary people and rational government behaviour.
Canada, for instance, is a stable democracy with a smoothly growing population and extensive and diverse resource base (coal, minerals, timber, oil/tar sands, and essential crops such as wheat), yet we have seen the Canadian dollar fluctuate irrationally against the American dollar and world currencies over the last 20 years.
At one point the Canadian dollar was worth $0.65 against the greenback and just a year ago the Canadian dollar zoomed to a high of $1.06 US! Today, it fluctuates almost at par but moves up and down a fraction to one cent almost hourly!!
Such roller coaster -- and even penny -- differentials have huge impacts on the Canadian economy and corporate decision making, creating uncertainty and undermining long term planning and growth.
Businesses that sell outside of Canada usually sign contacts in US dollars. So any change in the relative value of the Canadian currency to the US dollar – as set by the daily market swings -- affects their bottom line.
NHL teams in Canada, for example, when the Canadian dollar was at $0.65 US were bleeding to death as long term contracts for players signed when the currencies were close to par suddenly cost teams 35% more in Canadian funds – a huge penalty!!!
Even a fluctuation of 1 cent out of 100 cents (= $1.00 ) is significant as it is a 1% change and many companies often work on a net profit margin of 5 to 10%. So a drop in the Canadian dollar of 1 cent can affect profits immensely!
Profit and business viability is consequently and too often at the mercy of exchange rates, not in the sale of goods per se.
And those exchange rates are not controlled by governments any more really, but the speculative stock marketers.
So lets end the speculative currency roller coaster before this and related market insanity ** result in another World Depression!!!
The governments of the world and IMF need to get their acts together – or we will all pay a horrendous price as the currency fantasy comes to a crashing end!!!
** A barrel of oil from normal ground wells costs $10.00 or so to produce and even the most expensive oil source, the Alberta tar sands, are ‘profitable’ at $70.00 a barrel according to the OPEC minister from Saudi Arabia. So why is oil selling around $85.00 a barrel on the ‘open market’ and expected to go up?
Because MARKET SPECULATORS rule!!!
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