Some readers have been asking about the prospect that a US-led hyperinflation would extend into Canada. The short answer is that it depends on how much of an economic bully the US administration is going to be to its trading partners. Unfortunately, Canada’s export trade is not very well diversified. We rely too much on the U.S. for our exports. This needs to change. Canada needs to sell to a wider variety of nations.
So far, the Bank of Canada has been reluctant to churn the printing presses – just as the European Central Bank also wants to hold back in favour of more regulation and a laissez-faire, Austrian approach to the economy.
But lately the US Treasury under Geithner, along with the backing of Obama, has been getting more aggressive in its push for “worldwide” economic cooperation, which basically means worldwide *stimulus*. Stimulus and quantitative easing are just euphemisms for inflation, or, the printing of money out of thin air.
Inflation is the deliberate, centralized increase in the money supply. More dollars means each one is worth less. More dollars means less money integrity.
Canada has recently been praised for the integrity of the loonie. We ride the highs and lows of the oil prices and don’t deliberately manipulate the amount of loonies in existence. In addition, and dependent upon the loonie’s strength, the Canadian banking system has been praised around the world as the model to follow going forward. Canada should be standing its guard and seeking to protect the integrity of its monetary and fiscal system. This can be hard to do as long as we are tied at the trading hip with the U.S.
I’m not advocating protectionism (a very bad idea), nor stopping trade with the U.S. (crazy!). I’m just agreeing with what Canadian business and economic leaders have already been saying for years. Canada needs to diversify its export base. Just as you wouldn’t want all your income eggs in one basket, neither should Canada get 85% of its trade income from the U.S. We’ve seen how messy that can get these past six months.
In short, just because we’re geographic neighbours doesn’t mean our economy has to mimic the Americans. Take a look at Japan-China, or Korea-China. See the economic difference.
If the US decides to hyperinflate, Canada needs a line of defense against it so that she doesn’t end up getting sucked down in the leaky lifeboat. Canada has the oil and all the resources it needs to keep a REAL economy going without the support of US credit-card consumers. And this happy ending can materialize if the Bank of Canada manages to hold its ground with the loonie.
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{ 5 comments… read them below or add one }
What are suggestions for individuals that they can do to protect themselves if such an event strikes?
Buying up real assets?
Hi Tom,
Check out the post I did a couple of days ago,
http://www.getmoneyenergy.com/2009/03/how-to-protect-your-wealth-from-hyperinflation/
I do suggest having some physical gold, as well as gold stocks (and physical silver, actually). You can also buy some of the other precious metals if you can afford it (although they will be less liquid – palladium and platinum).
You might also want to pay down your debt, although that’s a sticky issue – unless your SALARY also hyperinflates (unlikely) then you’ll still have to pay down debt with your own dollars. So it’s unclear to me what the status of personal loans and debt will be during a hyperinflation scenario. But if a new currency ratio is created, or something similar, it could make it harder to pay debt, not easier. Just my speculation.
Thanks for asking. – Yes, real assets of any kind – including land, as another commenter asked the other day.
Money,
I think Canada can only still “neutral” and see how things start to fall into place. Also you would be right in think that debt is going to hard to pay down in the in the short term.
If only it were easy to purchase real estate right now!
Reserve Currency, and Hyperinflation.
If I buy gold/silver, and the USD is no longer the Reserve currency used to trade Gold/Silver….and the USD hyperinflates…..what happens to the buying power of Gold Silver?
My brain hurts trying to figure this out. If the silver goes way up, but in worthless USD, …but, Eh, ack…..I don’t understand how this will all play out.
@Mark – the buying power of gold and silver are going up no matter what currency you use to purchase them. Gold is in a long-term rise against all fiat currencies right now. If the USD hyperinflates, it will be much more costly for you to buy gold if you are buying it with USD. If silver “rises” it is always against some currency. Gold and silver are traded in many currencies, not just USD.