The Phaserl


Canada “Getting Clocked” by Something Far Bigger than Oil

from Wolf Street:

Canada is likely in a technical recession, after the economy shrank for the first five months of the year. It’s heavily dependent on commodities. The oil bust and the broader commodity rout have been blamed liberally. The theory goes that the problem is contained. The oil patch may be wallowing in the mire. But no problem, the rest of Canada is fine.

The swoon of the Canadian dollar against the US dollar has caused a bout of false hope that this would make Canadian exports of manufactured goods more attractive to buyers in the US and elsewhere, and that the economy could thus export its way out of trouble. This theory has now run aground.

Because the threat to manufacturing in Canada comes from Mexico.

“I think Mexico’s just a cheaper place to produce, and you have enough human capital and engineering skills to produce almost everything you can produce in Canada and do it a lot cheaper,” Steven Englander, Citibank’s global head of G-10 currency strategy, told Bloomberg.

And the multi-year swoon of the Canadian dollar against the US dollar isn’t going to help. Over the last three years, the loonie has lost 25% against the US dollar, the peso 21%. Over the past 12 months, the loonie lost 16% against the dollar, but practically in lockstep with the peso.

This chart shows the move of the two currencies against the dollar as a percentage change from three years ago. It’s like a downhill tango:

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1 comment to Canada “Getting Clocked” by Something Far Bigger than Oil

  • WillyT

    I live in Ontario and I can’t say I blame companies for moving their manufacturing facilities to another country. Ontario used to have a lot of manufacturing especially the car industry, which is becoming a thing of the past. Our provincial and federal government’s make it very difficult to keep businesses here because of the cost of doing business in this province. Our taxes keep rising and we pay more for our utilities than any where else in the country. To the point people can hardly afford to pay their electric bills, they are outrageous. All the wind turbines they have been erecting here in the past couple of years is just killing everyone. They can’t see the writing on the wall, meaning they are going to bankrupt small business’s who can’t afford to pay the huge bills. Also the fact they want to raise minimum wages as well as start a provincial pension plan. We already contribute to a federal pension plan. They just keep piling on the costs. Soon there will be no manufacturing in this country whatsoever. We’re slowly going down the toilet. Lets see what the next couple of years hold, its’ not looking good at all.

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