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.

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.

Unfortunately for me, since I’m currently in the US, the recent dramatic drop in the Canadian dollar is causing everything to suddenly become almost 20% more expensive.  I’ve been waiting for the dollar to turn around again - even last month’s 10% difference is looking really good now - but I fear it’s going to take longer and I’ll be stuck paying 20% more for stuff.  It seems so unfair, especially when you consider the recently disclosed fact that Canada has the safest banking system in the world (yes, several points higher than Switzerland and Luxembourg).

But commodity and resources drive (much of) the Canadian economy.  And right now, not much growth is predicted across the globe for the next while.  Just yesterday, I think, the Wall Street Journal reported that China has just seen its first quarterly GDP decline since it opened its markets!  So what this means is that there is apparently going to be less demand for Canada’s potash, oil and zinc.

I’m feeling fairly optimistic about the market mess.  Maybe it’s because I knew it was coming and so I am not as surprised and certainly not scared by the media reports, who need to milk a good story for everything it’s got.

Pure fundamentals, though, seem to suggest that there’s no way around it but that the US dollar really has no support and it’s gonna start falling back again when the markets realize the US economic fundamentals (why this hasn’t happened yet is completely baffling!).

Obama’s election might also help prop up the markets, at least for a while.  I have a feeling he’s going to have a bit of a stabilizing effect.  What do you think?  Anything could happen in the next two weeks, but it seems likely we’re going to see Obama’s face in all the 8×10 frames hanging in government offices everywhere.