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Thread: Impact of the soaring loonie?

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    Default Impact of the soaring loonie?

    I am so ignorant about money and all things money related. But I read that our Canadian dollar is doing rather well, but that this isn't necessarily a good thing for Canadians? That we could lose a lot of trade? I'm just happy American stuff online isn't as expensive, but then I wonder if we'll get fewer American tourists this summer. How much of an impact might there be?

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    God/dess Deogol's Avatar
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    Default Re: Impact of the soaring loonie?

    More powerful currency means you can buy outside of Canada more easily which usually means layoffs for canadian workers. This is the downside to a good currency.

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    Default Re: Impact of the soaring loonie?

    bringing the matter closer to a dancer's perspective, a few years ago dancers working in Canadian border clubs were able to offer border-hopping American club customers full contact lap dances for US$14 or so (= CDN$20), versus typical lap dance prices in US clubs costing US$20. But with the soaring exchange rate of the loonie, those canadian lap dances which used to cost US$14 now cost US$18+ (= same CDN$20), giving would-be border-hopping American club customers much less reason to bother driving an extra 60 miles and dealing with border customs hassles in order to only save US$2 a dance.

    On the flip side, a few years ago Canadian guys would never consider crossing the border to check out US clubs despite the arguable possibility that some US clubs were nicer or the girls in US clubs provided more variety, because the US$20 price of American lap dances actually cost them CDN$28.58 . However, today the actual cost of an American lap dance for a Canadian border-hopper has fallen to less than CDN$22, making the likelihood of some Canadian club customers deciding to check out US clubs versus going to the same old Canadian clubs is greatly increased.

    The cumulative result is a potential double whammy to Canadian businesses, because not only do they stand to lose the business of American 'bargain-hunters' (because the strong loonie has erased much of the cross-border bargain), but they also stand to lose some of their domestic customer base to American business competition (because the strong loonie has erased much of the former price premium - and America's relative size means 10 times as much product variety can be offered).

    Also, as Deo points out, there is usually a 'second wave' of consequences beyond the immediate loss of American border-hopping 'bargain hunters' and the loss of a few Canadian customers who decide to check out the greater variety in US 'product' now that the cost premium in CDN$ is pretty much erased. Back to the Canadian dancer example, consider the fact that many Canadian guys who are still customers in Canadian clubs actually work for Canadian industries that primarily export products to the USA. With the loonie growing stronger, this automatically tranlates into higher US$ denominated prices for those exported Canadian products which Americans had been buying.

    If/when American customers are faced with rising US$ denominated prices for those Canadian export products, they will likely demand that the US$ price of those Canadian products stop rising (i.e. will force the Canadian producers to cut profit margins to maintain sales volume), or they will decide to purchase equivalent products from American producers instead since the US$ denominated price of American products is now the same or lower than the Canadian product's US$ denominated price plus the extra shipping/customs costs involved with export. In the first case this means no pay raises or outright pay cuts for those Canadian workers to allow the Canadian company to continue operating in the black. In the second case this means layoffs for those Canadian workers as the Canadian company starts operating in the red. Either way, this will trickle down to dancers in Canadian clubs in the form of fewer Canadian customers being able to come into clubs in the first place, or less average spending by Canadian customers who do continue to come.

    The 'experts' figure that the current exchange rate of 1.10 just about tips the scale in favor of American producers, given the higher taxes in effect on Canadian businesses and the extra shipping/customs costs involved in export which are effectively tacked on to the price of Canadian export products sold in the USA. If the exchange rate drops to 1.0, the Canadian economy is likely to be in for a huge slowdown/recession in every industry except energy/commodities (which are effectively priced in US dollars not Canadian dollars). Furthermore, Canadian divisions of US companies (like auto plants) will be dead meat as the equivalent labor + benefit cost to the US corporation of workers paid in Canadian dollars versus US dollars tips in the wrong direction.

    There may actually even be a 'third wave' of financial effects, once laid off Canadian workers start collecting gov't benefits thus increasing Canadian gov't expenditures, with many laid off workers being unable to find new jobs thus collecting yet more gov't benefits. If the Canadian gov't deals with this budget problem in typical fashion, it will mean an increase in tax rates on the remaining Canadian businesses and workers in order to pay for the costs of these gov't benefits. This in turn will leave less money in the pockets of all Canadian workers who still have jobs, meaning that club customers will probably be spending even less when they come into Canadian clubs in the future. This will also probably mean that some additional Canadian businesses can no longer operate in the black due to the increased tax bite, translating into yet more layoffs and fewer Canadian club customers.
    ~
    Last edited by Melonie; 05-06-2006 at 08:33 AM.

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    Default Re: Impact of the soaring loonie?

    Man I must not go to cheap clubs. In the US I have never found a lap dance for $20!

    In Michigan they have laws about strip clubs. If there is alcohol at the club then it is only topless. To go to a full nude club we have to drink coke. lol Canadian clubs are popular here because of that fact alone.

    But because the economy here is dropping like a rock fewer will be going to Canada for strip clubs, gambling, or vacations. I think that is more of a factor than the currency exchange rates.

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    Banned Melonie's Avatar
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    Default Re: Impact of the soaring loonie?

    like typical Michigan union wages, Michigan private dance prices have been significantly higher than the rest of the country (since it was possible for Michigan club customers collecting union wages to afford higher private dance prices) ! As more and more Michigan union wage jobs disappear, and more and more Michigan club private dance customers disappear, private dance prices will probably come down to match other areas of the USA. The higher priced private dances aren't even in effect through all of Michigan (i.e. Michigan clubs near the Indiana border charge $20 because Indiana clubs charge $20), but are concentrated in clubs around cities with union Auto plants.

    Yes, sometimes a 'competitive advantage' exists that is legal rather than financial, i.e. your comparison of Ontario club regulations versus Michigan (or for that matter New York, which also has topless only when alcohol is served laws in effect). But this is not true of every Canadian province versus every US state. It is also not necessarily true that the club/dancers who are at a legal 'competitive disadvantage' won't decide to 'bend the law' to regain their competitiveness (i.e. making up for lack of alcohol service with mucho mileage in the VIP room). But these sort of issues are independent of exchange rate / relative price factors (and can certainly be employed on both sides of the border to the long term benefit of nobody).
    ~
    Last edited by Melonie; 05-06-2006 at 07:49 AM.

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    Default Re: Impact of the soaring loonie?

    For those from the Winipeg Canada area, it means you get as many people as possible in your GMC suburban truck (to share gas money), and hook up a cargo trailer to the
    trailer hitch.

    You then drive over the border into the US and buy stuff in Grand Forks (Columbia Mall?)
    especially clothing. The the early 80s TVS and applicances were popular to bring back to Canada, but they may be just the same cost now on both sides of the border.

    I'll bet US clothing is a good deal with the strong Canada dollar.

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    Default Re: Impact of the soaring loonie?

    I know it's a monetary term, but the thread title "Impact Of The Soaring Loonie" sounds hilarious. Like a crazy X-Files episode or something. Carry on.
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    Default Re: Impact of the soaring loonie?

    I'll bet US clothing is a good deal with the strong Canada dollar
    However the prices in Canada (rack rate on the tags) will be stayer higher, while the US dollar is worth alot less, you will see fewer american tourists.

    In fact more people from Canada will come to the US.
    ... which will also result in Deo's 'second wave' of effects. Business levels at Canadian retailers and Canadian suppliers to those Canadian retailers will drop, while business levels at American retailers and American suppliers to those American retailers will increase. This in turn will probably result in layoffs by Canadian retailers and suppliers, while creating new jobs for American retailers and suppliers.

    ... which could also result in a 'third wave' of effects. Laid off Canadian workers start to collect unemployment and social welfare benefits to the point where Canadian gov't budgets turn red. The Canadian gov't then raises taxes on remaining Canadian businesses and employees to cover the increased cost of unemployment and social welfare benefits, forcing the Canadian retailers to raise prices even further to stay in the black while paying higher taxes, plus causes Canadian after-tax paychecks to shrink. This in turn prompts even more Canadian customers to go 'bargain hunting' across the US border, and prompts more Americans to shop/vacation at home, leading to yet more Canadian layoffs.

    The most difficult part of this 'swing' in economic balance is that the forces which are being set in motion right now because of the <1.10 exchange rate will take months and months to trickle down to the bottom line of Canadian business and gov't budgets - with yet more months and months passing before business owners and gov't officials recognize/acknowledge the changes and decide what to do about them. The proverbial analogy used to describe this situation is 'trying to turn the Titanic to avoid the looming iceberg'. As a result, the 'experts' are expecting a major economic downturn in most segments of the Canadian economy a year from now (again, with energy/commodities excepted because world markets price these in US dollars not loonies)
    ~
    Last edited by Melonie; 05-07-2006 at 05:54 AM.

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    Default Re: Impact of the soaring loonie?

    But I read that our Canadian dollar is doing rather well, but that this isn't necessarily a good thing for Canadians? That we could lose a lot of trade?
    Yep. Soaring loonie sounds good in theory, but I'm not a fan. We're too small a country (not physically) to benefit- you're right, pretty much all we get for it is loss of trade and tourism.

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    Default Re: Impact of the soaring loonie?

    But I will say I do love shopping in the States even more now

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