BNN’s Amanda Lang and Kevin O’Leary reported today on SqueezePlay that three U.S. cities have just written letters into the Treasury asking for their own bailouts - Arizona, Pennsylvania and Georgia are starting to look as financially well-off as California, which is completely in the red.  Is this a sign of worse to come?  What’s the difference between a bailout and a usual subsidy?

It occurred to me earlier today - the irony of a situation in which the US government might “bailout” GM and Ford and yet the same administration failed to build sufficient levees in hurricane-torn New Orleans - let alone all the help and reconstruction that city did not receive when it needed it.  But the bailouts of these dinosaur-Detroit automakers get this much attention… amazing.

I’m also more than a bit nervous about this weekend’s G20 meeting - there better not be any drastic tinkering of the world global system - we don’t want to be releasing too many butterflies into world weather maps, if you know what I mean… it’s exactly what David Smick was warning about in his latest book, and I think it shows how we’re now at a politically fragile moment globally as well.

In other words, the economic crisis has grown from a US mess (Aug. 2007-Sept. 2008) into a global financial mess (Sept-Oct 2008) and now this month I think it’s really become more than a mere economic mess.  With this G20 meeting, it’s gone political.  News reports today showed that Ecuador is going to miss a foreign debt payment, and that Canada and the US are thinking of partnering up in order to save the gas-guzzling market.

I really don’t like the look of any of it.  It’s no longer seeming like some storm that’s going to pass over.  We al know we’re in a global recession now, but it’s no longer just a recession.  The changes that are being made now are going to create new problems in the future.  There’s less transparency and more confusion at this point.  That’s what’s really holding the markets back.

And I’m really frustrated that our (Canadian) currency isn’t reflecting the real worth of the Canadian balance sheets.  It’s completely ridiculous that the most corrupt treasury is seeing all the gains right now.

It’s because some investors imagine that the European and Japanese economies’ growth is expected to be much slower than even that of the US.  Hence, the prospects for using the Euro and the Yen as alternative reserve currencies are also looking more dismal, or so the theory goes.

I have to admit, I don’t think this reason is as compelling as the simple fact that I wrote about previously, which is that we’re seeing a big round of “forced buying” (I love that phrase) of the greenback due to all the redemptions in hedge and private equity funds, etc.

The “first” reason for the rise in the greenback is that there are so many average domestic Joes and foreign governments buying US Treasuries and money market funds looking for a safer but still attractive place to put their money.  This also makes the US balance sheets look more attractive, which apparently helps the greenback image.

You can see how all three factors so far depend upon the current circumstances and have nothing at all to do with Fed fundamentals - ie., how much debt the US has, how much of a trade deficit it has, and how many more dollars have been printed (and thus devalued) just as a result of the bailout alone (to say nothing of the funding of the Iraq war).

Today the Canadian dollar has fallen to 25% below the Greenback.  Analysts think they could see a 30% differential in one week.  Who could have foreseen this a year ago (October-November 2007), when the Canadian dollar was 10% stronger than the US dollar (at the all-time high, one Canadian dollar bought $1.10 American)?

The latest central bank rate cut aside, it isn’t the Canadian economy causing the loonie to fall.  We know the Canadian fundamentals are in better shape than the U.S.

It’s because all around the world, foreign currencies are returning to their homelands as US investors dump their foreign investments in order to hold cash, i.e., Greenbacks.  This causes the nominal value of the Greenback to rise, since there’s less of it in circulation and more demand for it.

If this is correct, then as soon as we see the markets improve and foreign investments looking more desirable, the Canadian dollar should find its way right back up again like a cork jumping to the surface of the water.  There might even be some pent up demand caused by this extended pseudo-moratorium on loonie-buying.  I mean c’mon, I’ll repeat that the Canadian banks have recently been declared the safest in the world (above Luxembourg and Switzerland).  We still hold the most potash, we provide the safest supply of oil to the US, and we had no real estate sub-prime problems (as some European countries even did).

In the meantime, I’m thinking of strategies for getting around this insane currency rate business.  One strategy, obviously, is to be paid in US dollars.  I can do this by buying dividend-paying US stocks (a much slower way to build up those dollars), or just by finding an extra source of employment income in the US.  If you’re a Canadian also currently living in the US, I’d love to hear more from you about the strategies you’re using.  If anyone else has ideas too, feel free to chip in.  Until then I’m spending 25% more for everything from public transit to groceries.  Now is not a good time to buy larger ticket items if you’re working from the loonie.