Forum Moderators: buckworks
It looks as though the US Dollar is going to tank badly from here on in. Up until now I've been eating it on the exchange rate because the American market is my largest segment, and most of my competition has not yet upped their prices. As the Canadian dollar has gone from 62 cents US to over 97 cents yesterday I'm finding it very hard to hold the line on pricing. Anyone else in this same boat and have any idea what the best course of action might be? My big concern is that surely a great many business's are in the same situation and are all going to jump their prices as soon as the competition does. This will cause a massive run up in inflation and crash the economy for us all.
Lovejoy
As you can see, as a liberal democracy, its strange that our border service is still run like if it was a facsist state.
I have zero problems with my government enforcing laws at the border. Sorry.
I live in a border town and I can tell you from lots of experience that US Customs are far harsher than Canada Customs.
Try sending a truck with commercial goods to the US border without pre-clearance. Enjoy the 20 grand fine for first offense.
It is a different landscape and we are changing with it. Not much else we can do.
The problem is that we do have a fair amount of inventory that we purchased last winter or spring. That stuff has to go through the system until we can adjust pricing.
The only real issue for us is the speed at which the Canadian dollar came up. Normally we just wait until we do our yearly pricing and make a guess where the dollar will be in the future. Now we have to act quicker.
Keeping higher prices in the meantime means not only loosing sales today, but customers might not check your site in the future...
Stefan, get way with what? Don't follow you exactly.
Taking their orders from a foreign government (didn't want to be too specific). I shouldn't have posted it, anyway. It's best to keep politics out of threads here.
<edit>fixed quote end-tag</edit>
[edited by: Stefan at 1:45 am (utc) on Sep. 27, 2007]
I wonder where it will top out. $1.05 maybe?
They had to lower interest rates to off-set the sub-prime mortgage disaster (which is still threatening to unravel, see reports by citi bank, UBS, and ABN-AMRO, as well as the bank panic in England). Wall Street practically bullied Ben Bernanke into lowering the interest rates on Sept. 19. (Remember Jim Cramer's public meltdown?)
Besides the sub-prime disaster (which many saw coming back in 2003), Wall Street was and still is looking down the barrel of a recession (1st qtr 2008) - if Bernanke didn't lower rates. (IMO, it's not going to help).
However, as it has proven to be the case, lower interest rates means less foreign interest (desire) to buy the US Dollar via US T bills, and other common debt instruments.
It was an either/or situation and Bernanke chose to try to stave off a recession/depression instead of staving off inflation.
Since he chose the former, we will most likely have inflation, or as some economist like to point out/predict - STAGFLATION, a period of slow economic growth coupled with high inflation.
China subtly threatened a month ago to dump their 1 trillion in US dollars when the Demopublicans starting rattling their economic war rhetoric about China's persistent devaluation of their currency and trade domination. But as the Sec. of Treasury pointed out, (He's an ex Goldman Sachs insider), that would be just as bad for China as it was for the US.
But apparently not bad enough. Economists call this threat the "Nuclear Option" - since that's what it would do to the USD. Nuke it. So the US has said, and probably truly believes, it will never happen.
But the silver haired gentlemen in charge of the of People's Republic of China are smarter then previously thought, and certainly smarter then the demopublican economists running the think tank shows in DC. Why are they smarter? They've been using that 1 trillion to trade with while taking the profits in other currencies and commodities, and are slowly drawing down the rest.
In other words, they are making a s l o w m o t i o n escape from the almighty USD.
On top of that, Russia, Saudi Arabia, and other countries, including Iran, are breaking away from the USD.
It's getting dumped and avoided like a fat chick with acne at a Victoria's Secret Fashion Show.
I haven't read of one single economist who thinks or believes the US will try engineer a USD comeback or that the USD will make a comeback. Nobody, anywhere, no matter the school of thought on Economics, is talking about any kind of return of the USD as a world currency.
In other words, we are witnessing history, a fundamental paradigm shift away from the US Dollar's historic - 50 year role as the first currency on the world stage. As sure as globalization swept away the Cold War, the time of change for the USD is right now.
And so, Bernanke has made his choice. Fight the recession. When it's too late, they might try to raise rates to fight inflation. But they are between a rock and a hard place and they can't have it both ways and will probably end up without preventing either one of them.
It is a first class FUBAR.
Add into that the $9 trillion in public debt, $45 trillion in unfunded liabilities, record high personal debt (Average American has $8,000 in JUST credit card debt), oil prices heading higher, food prices higher, home values tanking - and a democrat likely headed to the White House when all have promised to socialize medicine in this country (We can't even afford the $45 trillion unfunded SS, Medicare, etc., - how in the heck are we going to pay for socialized medicine?!) - and any words I could write to describe the severity of the situation Americans are now in would be an understatement.
Where will all this lead? I really don't know. There is some talk in economic circles, that a fall in the USD will give birth to the Amero, a currency sponsored and backed by a North American Union between Canada, Mexico and the United States. Their reasoning is that the Demopublican's could only sell this to the American people when the dollar had completely tanked, and the "Amero" was magically worth more. Then it would seem like a good deal and 300 million Americans would credit their government with bringing about a great solution to the dollar crisis.
I don't know if that is true or not, or will happen, as it's obviously just speculation. But it seems to me just the sort of thing the moronic demopublicans would try to pull off. Be the cause of destruction of the USD and then proclaim themselves heroes for saving Americans with the "Amero."
But the really sad thing is that the Average American, 99 percent of the 300 million, have no idea what I just said, or that their currency is tanking. They have no idea what the exchange rates mean, how this could affect them, or the inflation that's coming. I might as well have been Charlie Brown and wrote "Ah Wahh, wohh-wohh, ahhhh-wahhh-wahhhh."
Sorry for the long post, and for the record, demopublican is my word for democrats or republicans - because after all, it's really just the same thing.
Lovejoy
It would appear to CAD customers that the prices would be better then USD. I don't have to take a 2.5 % bank charge for exchange.
I have not noticed a 10% drop in sales numbers.
On the internet, we can change prices quickly. Not like printed catalogs which have a life of 6 months.
Of course, it is difficult to explain everything since it's all intertwined.
In Canada, we have seen a reverse exchange acting:
scenario for lumber
------------------------------------
Canadian 2x4 are sold to lucrative market in the US with prices set 1 year in advance.
USD is lower than expected.
Canadian sawmills blead profit because of the fluctuation.
Canadian 2x4 are not sold 1 year in advance so our price goes up even if we have more buying power.
It was (not certain now) cheaper to buy a canadian #1 2x4 in the US than a #2 2x4 in Canada - in fact we never got a #1 2x4 in our region because they are all exported.
---------------------------
It's looking like they're trying to do this with cars. There's no reason why they won't adjust the USD prices up and the CAD prices down.
I do not think the American public realizes the significance of this event. They will notice next year when the inventories that are being purchased today hit the shelves next spring. There is no doubt in my mind inflation is on the way and maybe a mild recession.
However, you are very correct, the earth has shifted and the consequences will be felt for a long time.
We have a national best selling book series and we just finished the 4th book. We had to have our final proof off to the publisher about 5 weeks ago and just got the bound books today.
This wasn't my department.. thank goodness... but on the back cover we did a USA and Canadian price like you see on most books and magazines. So we have the USA price listed as almost $2 less then the Canadian price... and so.... for no good reason we are discounting sales in the USA book stores... our only reprieve is that on the website we don't have to honor the back of the book and we aren't discounting for USA sales on their.. even still..... we are in about 5000 book stores in the USA and we are cutting them all a deal... not sure why.
[edited by: Demaestro at 8:39 pm (utc) on Oct. 2, 2007]
I was shocked at the speed of the change.
Funny thing - I live in a Canadian tourist area not far from the USA (Blue Mountains, Ont), and when I was in the beer store a couple of days ago, an Aemerican in the line in front of me was baffled when he only got 94 cents on his dollar (it should have actually been about 97, with the exchange charge taken into account). He said, "but I always get more!" The lady at the cash asked if he'd checked the exchange rate lately. He hadn't - apparently just assumed that his greenback was still a powerhouse currency. It was almost embarassing how out of touch he was.
I doubt if the "Amero" will go anywhere. Most Americans may be oblivious to how much their dollar is tanking, but Canadians are certainly aware of it. It's not in our interest to tie ourselves to a sinking ship.
"Say Goodbye to the dollar." [webmasterworld.com]
But Tabke renamed the thread "Moving Dollars into Gold" and the thread was quickly taken over by a bunch of eternal optimists who became very hostile and bascially wanted me to keep my mouth shut.
As I later clarified in that thread, which wasn't really about gold, I focused my OP on 3 things:
a). The dollar is in serious trouble
b). inflation and a real estate/credit bubble is a real possibility
c). A recession could have an impact on our business and deserves to be talked about. Booms and busts are cyclical and no economy is bulletproof from them.
On that day that I posted, Gold was $539 and the Euro was worth $1.21.
Today, Gold is $742 and the Euro is at $1.415
As for the fate of the Amero, I hope it goes no where as well, but one never can tell or trust what government leaders are going to do, including Canada. It takes a lot of blind faith to believe they will do the right thing in the best interest of Joe Shmoe Canada. IMHO
Lovejoy
Why it has taken this long to tank is a mystery to me.
Exactly. There's been an orderly decline since 2003, but I wonder if it will stay "orderly."
-Opec countries demand to be paid in Euros for oil( Like Saddam did)
-Big debt holders stop buying treasury bills (over 2 billion a day)
-Big debt holders start using their reserves of US dollars to buy
assets US assets
-The Fed continues to cut rates
Lovejoy
1- Largely by the central bank and it's interest rate (money supply)
2- The country's exports
3- Jawboning , or government intervention.
Taking the above three into account , pending future fed rate cuts, the USD will reverse course soon and run a retracement back up. The dollar is way too cheap , equities are even cheaper to buy and inshort it's like the entire USA is on boxing day sale , creating demand for all things US and thus the currency.
I do however agree greenback's glory days are long gone .
I'm switching my EUR and GBP into USD and holding for a little while, then go gold :)
Based on your points I don't see the USD reversing course near enough to warrant keeping it. The Fed is printing money like toilet paper, the country's manufacturing base has been outsourced, as for buying American assets, it's just another way for holders of huge reserves of US dollars to dump it.
I don't think any amount of jaw boning is going to bring the dollar up, the talking heads at CNBC have been on a crusade to tell us all is well for the last six months, talking up job reports of 100,000 new jobs, when 130,000- 150,000 are needed every month just to break even ;~). In short if I were swimming I get out of the water, cause the "da dum, dadum dadum dadum music is getting louder ;~)
Lovejoy
Lovejoy
usual rule of thumb for me for US pricing is: increase the price until my response is.... this is way to expensive, I wouldn't buy that.. then increase that price by 10%.
Now, it's more like that for CAD pricing and let it adjust for exchange rate automatically....
I was long overdue for a Shipping / handling price adjustment. Don't forget that!
Big debt holders start using their reserves of US dollars to buy
assets US assets
I wonder if this has started yet. The US is at fire sale prices right now.
Ya, nearly a $1.03! Where the heck is it going to end?
We have raised our US prices and sales continue. However, this is our slow season so we will not really know until next summer if we are shooting ourselves in the foot. We have lost our advantage against our US competitors and that scares me. Either we need to increase volume of sales or we are going to lose market share.
Scary times ahead.
Freedom,
I remember that thread and man you were bang on for the most part. I was concerned about the fall of the dollar back then too.
US consumers are in for a rude awakening next spring when the shelves in the stores need to be restocked. I think that most US consumers really do not see it coming either because they have such a disconnect between the former power of their money and its relationship in the world today.
[USA consumers are in for a rude awakening next spring when the shelves in the stores need to be restocked. ]
The US is starting to import less of certain discretionary goods.
That is going to have an significant impact on manufacturing over seas.
Travel costs are rising over seas so USA citizens are likely to travel less in Europe and more at home.
Any large shift in currency values, hurts [ upsets ] the global economy. Hopefully it will only be for a short period of time.
"The US is starting to import less of certain discretionary goods.
That is going to have an significant impact on manufacturing over seas.
Travel costs are rising over seas so USA citizens are likely to travel less in Europe and more at home."
The problem is that much of the imported products are coming from very low cost countries such as China, India etc.... and Americans will continue to buy those products. European products might be hit, but if the USA is not manufacturing those products there will not be much choice, either you buy it or do without, because comparable products are no longer made here.
Far fewer Americans are traveling overseas these days, even visits to Canada are way down. I can see overseas traveling spiraling downward for two reasons, the low dollar and increased air travel cost as oil climbs to 100.00 a barrel.
I think we will all be living that Chinese Curse, " May you live during interesting times" ;~)
Lovejoy
...as oil climbs to 100.00 a barrel.
But that's priced in US$ :-) The price of gas in Canada has been stable for the last few months. I'm sure it's the same for jet fuel. Same deal in Europe. Really, oil hasn't been rising that much - rather, it's the dollars it's priced in have depreciated. At some point, it will probably start to be quoted in Euros.
Americans aren't particularly big on travelling anyway, eh? I doubt if it will make much difference to the rest of the world. At worst, some Canadian tourism outfits will have to learn to adapt. Might be a good thing. There are a lot of Europeans and Asians with serious cash we should be courting.
[edited by: Stefan at 2:00 am (utc) on Oct. 13, 2007]
At some point they will have to pull the plug because of internal conflicts of holding so many dollars will cause in their own economy. If the Dollar is dropped for the Euro as the petro dollar all bets are off
and I don't think anyone can forecast what damage that will cause.
The only comparison I could make would be when Canada's debt to GDP was dire and the national debt (per capita) approached the level of the current American national debt. At one point the Canadian dollar was as low as 61 cents US, perhaps that's where the US Dollar is headed.
Lovejoy
Canada’s travel deficit: climbed to $4.1 billion during the first quarter of 2007 (an increase of 9.1% from the same quarter in 2006. This constitutes Canada’s highest first quarter deficit on record.
The travel deficit with US: reached $2.6 billion dollars during the first quarter, up $146 million from the same quarter in 2006. The decrease in spending by Americans in Canada combined with Canadians’ record spending in the US created the highest first quarter travel deficit ever recorded.
Source
[corporate.canada.travel...]
I doubt if it will make much difference to the rest of the world.
