Friday, November 13, 2009

Inflation and the Canadian / US Dollar

I am likely more aware than most people on the exchange rate between Canadian and US dollar. I have income, expenses and assets in Canada and the US.

The US Dollar has weakened considerably in the last few months by almost 15% compared to the Canadian dollar.

I have a concern that current government spending will cause inflation. One way for government to deal with debt is to expand the money supply, creating inflation. So, if inflation starts to happen, how is the best way to deal with?

Ways to deal with inflation:

1. During inflationary times, it's good to own things so this would speak to stocking up on inventory and real estate.

2. If we go into a period of inflation, as prices rise it makes sense to lock things in. This would speak to locking in your lease rate, electricity prices, signing more longer term contracts.

3. In times of inflation, interest rates tend to rise, so it's a false economy to buy a lot of inventory now on credit and end up paying a higher interest rate, so consider locking your interest rate in longer term. The problem with locking in your interest long term is that the markets have figured out this is likely to happen, so longer rates are considerably higher than short term rates.

4. Regardless of whether there is inflation, it's always a good idea to have fewer expenses than income or revenue. This speaks to simply running a good business, leading a smart life.

Inflation is just one other turbulence in the market. Something that can be dealt with, not something to be feared, but it is something to consider.


At 8:05 AM, Blogger Unknown said...

This would also be very interesting to Laura who is also very aware of the US/Canadian dollar difference.

I think this is some very wise advice and that people need to start thinking about it now that the economy is 'back on track'


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