Canada's Future And Black Market Currencies

About seven years ago I bought currency on the black market in Argentina. I was on vacation and our tour guide asked us if we wanted to exchange our US dollars for Argentinian pesos. The Argentina peso was under great stress as inflation was soaring and currency controls were in place. Our guide explained that we could go to an official bank and get five pesos for every dollar exchanged.

Or…

“If you want I can take all of you to the black market and you can get eight pesos for every dollar, but there is a risk of counterfeit bills and also it’s illegal, but I’ll go with you if you want and everything will probably be fine. It’s up to you.”

Our busload of middle-class Canadian, American and British tourists sat stock still not saying a word. I shot my hand up and said, “Yeah, let’s do it that way.”

Nobody objected, so he told the bus driver to head to a t-shirt shop. We all went into this tourist trap that sold tourist junk, while our guide slipped into the back. He returned and said, “Okay, come in here.”

I went in and sat in a non-descript backroom while he went through a beaded curtain. He returned after a minute or two and guided me inside. Behind the curtain was a basement-type room with cement walls and a gigantic gangster looking guy sitting in a chair. Past him was an old man behind bullet-proof glass in a room where the currency would be divided up. I passed him my US dollars and he exchanged them for pesos while we held them up to the fluorescent light to insure authenticity.

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Mainstream Canadians often think of Canada as being the same as the United States only better because of our healthcare system and lesser social problems. This cliché is dubious and if you’re the type of conservative reader that enjoys Poletical, you probably think of Canada as more like the United States minus 30%, but without a military or a dynamic economy.

There’s truth to both claims, but I’m more interested in where Canada is going, not where it is at. With record levels of debt, low oil prices, politicians vested in leftist ideology, Covid-19 hysteria and a general cultural malaise of entitlement, decadence, division and cynicism… I suggest we’re looking at a long, slow decline. Canada’s trajectory for the next ten years won’t be the catastrophe of Venezuela that many conservatives on social media warn of, nor will it be a Greece-style, debt-fuelled, high-stakes drama that we saw in Europe ten years ago.

More likely, Canada is going to become a northern Argentina.

As our federal politicians embrace Modern Monetary Theory, we’ll be looking at an old fiat currency problem. Printing paper money in order to hand out free cash in our late-stage democracy will likely result in inflation, not right away to be sure, but eventually. There are a variety of excuses for why this won’t be so, the most compelling of which is demographics, imports of cheap products from the third world, and the overall example of Japan. Nevertheless, Canada isn’t Japan and our demographic situation is slightly better and imports are in flux now that globalization is up for debate. The more important metric is that Canada is one of the most indebted countries in the world and our currency is at the mercy of international markets.

Why does this matter?

If Canada’s debt becomes a problem in the eyes of the international community, then our credit rating could get downgraded. If our credit rating gets downgraded, our cost of borrowing goes up. No problem! Just borrow from the Bank of Canada… Modern Monetary Theory, right? Then we print more money making our currency worth less. As our currency drops inflation rises. As inflation rises, interest rates naturally go up in tandem. Before long, we have an enormous debt with higher interest payments, a lower credit rating, higher inflation and a crashing currency.

Ta-da! We’re Argentina!

A slow-motion version of this already took place in Canada from 1980 until 2000. Pierre Trudeau got really ambitious in his fourth and final term in office and spent like a madman in hopes of turning Canada into a fully socialist country. From 1980 until 1984 the federal government spent like mad and left Brian Mulroney to clean up the mess. During this era inflation was high, interest rates went up as a result and the 1980’s saw a structural federal deficit. This occurred at a time when corporate and personal debt of Canadians was nowhere near what it is today. Our demographic situation was way better (younger) and Free Trade was not in full swing.

By the time Canada hit the fiscal wall, Jean Chretien was in power and bankers forced him to slash the federal budget in order to get the books in order. The cost of this was downloaded to the provinces and consequently Canada was a basket case of austerity and malaise during a time when the rest of the world was booming. It wasn’t until 2000 that things began to turn around slowly and increasing oil prices and declining interest rates helped make that happen.

We’re in for a replay of that 1980-2000 cycle only things this time will likely be much worse. Our demographic situation is worse (older) and all that entitlement spending has vastly increased. Our debt levels across the board are much worse. The price of oil is likely to stay low for quite a while yet. Lastly, our ruling class is much more hackneyed and unserious and ideologically leftist. This experiment in Modern Monetary Theory is the final straw.

We’re in for a decade of decline regardless of which politician or political party happens to be governing, but the bright side of the situation is that Canada and Canadians will likely be resilient enough to deal with, and adjust to what is coming. I don’t think Canadians really want the responsibility of “great nation” status that we awkwardly feel compelled to culturally maintain ever since our over-achievement in World War II. Most Canadians will be quite happy to relinquish the expectations of greatness in order to adopt a lifestyle of wine and tango and all-day coffee in the café. The millennial complaints of not being able to get started in a Baby Boomer fashion may just simply become the new way of life. There’s more to life than chasing riches and we have the United States right next door which allows us to sell to easily sell to the biggest customer in the world without worrying about declining to the point of Venezuela... even despite our best attempts. A smaller, poorer, less important Canada isn’t necessarily the worst outcome in the world. We can still make the most of things and enjoy a meaningful life.

A hundred years ago, Argentina was one of the richest countries in the world. Over time, it declined due to bad policies, bad governance, too much debt, over-reliance on commodities and an inability to adjust to changing international conditions. This is very much Canada today… and tomorrow will arrive soon enough.

Canada's Future And Black Market Currencies

"If our credit rating gets downgraded, our cost of borrowing goes up."