Cairo, Egypt — Excluding the annual exodus of Canadian "snowbirds" heading to the southern U.S. in the next few weeks, and ubiquitous cross-border shoppers looking for Christmas-season bargains, the falling American dollar means bad news for far too many people worldwide.
Canadian firms who export to the U.S. (and that includes the great majority of them) are feeling the pinch: their fourth-quarter profits for this year, and even into the first quarter of 2008, will certainly be affected. If manufacturing plant closures in Ontario and Quebec have caused concern this past year, 2008 is set to bring more worries of the same kind. Except for resource-rich Alberta and BC, who seem immune to the effects of the dueling Canada-U.S dollars, the rest of the country will continue to suffer negative effects in months to come.
For example, Canadian pension funds invested in U.S. companies have seen the value of their holdings shrink by an average of 10 per cent in recent months.
But my primary concern is the global social impact of the falling U.S. dollar. Within and between the affected countries, the net result will be – once again – that the gap between rich and poor widens. Even if the rich do not continue getting richer at the rate they once did, the poor become poorer disproportionately faster: this stems directly from the fact that the rich and powerful have always managed to maintain their status more or less unaffected.
The sinking U.S. dollar and the contrasting fast rise of the Euro are causing pain throughout the European Union as well. The aircraft manufacturer of the popular Airbus planes is already losing business to its American rival, Boeing. In fact, with every ten percent gain of the Euro against the U.S. dollar, Airbus loses a staggering $1.48 billion in profits. While the company sells its airplanes in U.S. dollars, only 50 per cent of the building costs are dollar-funded. The result is that Airbus executives are already planning to take most of the company’s manufacturing operations outside of Europe.
Airbus is clearly not alone among companies facing sudden strategic challenges due to the ongoing currency crisis. The European Monetary Affairs Commission is predicting only a 2% expansion of the EU economy in 2008 — down from 2.7% this year.
European finance ministers are now complaining that the U.S. dollar has fallen far enough that American Treasury secretary Henry Paulson Jr. should intervene.
The falling U.S. dollar has also prompted a number of oil exporting countries – notably Venezuela, Russia, Iran, Libya, Indonesia and Malaysia — to join a Euros-for-oil club. This will only lead to a further devaluation of the U.S. dollar against the Euro.
All of this means that Americans will likely be staying home a lot more next year, rather than traveling to Canada or Europe. The top four U.S. air carriers have all cut back their 2008 seat capacity forecasts between three and five per cent. The only reversal to this pattern would be if the weak dollar attracts an equal number of European and British tourists to the U.S.
Although a weaker dollar will make American exports cheaper, thus helping to close the wide U.S. trade deficit, higher-priced imports could cancel out any benefit and even push up the U.S. inflation rate beyond its current two per cent. And as soon as inflation rises, especially after a period of relative stability, fearful consumers will cut back on spending. A further result of the dollar’s continued weakness will be a rise in interest rates, making it more expensive for American consumers to borrow.
In Australia, that country’s dollar is now trading near a 23-year high and exporters are already witnessing a marked decline in their share of the global market.
But it is actually the world’s working poor – the hundreds of millions who earn less than $1 a day – who will be most gravely affected by the currency catastrophes of the rich.
In Egypt, a large percentage of the population falls into the $1-a-day earning category and that includes workers who would be considered educated professionals here in Canada. A recent university graduate lucky enough to get a teaching job in the Egyptian public school system can expect to make 100 Egyptian pounds a month. He or she is paid for only nine months out of 12, making their earnings less than $1 a day.
In sub-Saharan Africa, economic uncertainty among cotton farmers and the low-paid workers who depend on their crops, is mounting steadily. Today, cotton is selling for only about 10 percent of what it brought in a decade ago. African cotton is sold on the world market in U.S. dollars, while the local currency is pegged in Euros.
The falling of the U.S. dollar seems to be staged as a response against China with its week currency, the Yuan. But when a high-level European delegation recently visited Beijing to express the West’s concern about the under-valued Yuan, the Chinese were not interested.
Many analysts are predicting that the falling U.S. dollar will continue to have a negative impact on the world’s economy well into 2008. By February, when the G-7 finance ministers meet in Japan, the trend of their predictions may be even more pronounced. Time will tell if the U.S. economy will suffer sooner from its weak dollar or if the Chinese will stir things up by raising the value of their problematic Yuan.
If the present currency instability is not rectified, the entire world economy could slow down, triggering a global recession. A recession on such a massive scale would hurt us all – but none more than the world’s poor, who will pay more dearly than anyone else for the follies of the rich.