Northman's Fury

It seems that regardless what externalities affect other parts of the US economy and cause some suppliers to cater to American consumers, there is still one industry that follows the textbook supply/demand curves to go where the money is.

Cocaine traffickers appear to be reacting to the rise of the Canadian dollar and the fall of the U.S. greenback, preferring Canadian and European markets to those in the U.S., say drug experts and medical officials.

For the first time in years, many American cities seem to be experiencing a cocaine shortage while experts say some Canadian cities — including Vancouver and Ottawa — say they're seeing more cocaine than ever.

. . .

But the surest sign of cocaine scarcity south of the border is a 44 per cent increase in the street price across the United States, where a pure gram now averages about $137 US, said American drug enforcement officials.

. . .

DEA officials said the large traffickers are turning away from the U.S. dollar, preferring to trade their cocaine for euros.

That's driven a surge of cocaine imports to Europe and evidence from the streets suggests the same thing may be happening in Canada.

Vancouver prices, for example, are substantially lower than those in the U.S., said Vancouver police Sgt. Steve McKenna, who works on the downtown drug squad.

"A street-level gram right now is about 80 bucks," he said.

Of course, the rise in the loonie is hurting some of our domestic producers, but the black market in drugs alone is worth at least $3-400 billion. And where that market goes in its search for wealth, the legitimate markets will follow.

Not that its anything too original, but yesterday I noted that the continued hegemony of the US dollar was far from assured, and not long afterwards, this little gem pops up.

On Friday night, during what the participants thought were private talks, Venezuela's oil minister Venezuela Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari, argued that pricing - and selling - oil using the crippled dollar was damaging the cartel.

They said Opec should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world's largest oil producers and de facto head of Opec, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.

Well, its been mentioned, though I expect most of the big players will try to pretend it wasn't to keep the whole system from collapsing. They'll probably succeed this time, but eventually it's going to fail, and then it will be a rush to the exits to see who can get out before they lose too much.

Update:

The Dollar's Decline

A few days ago, Neil MacDonald wrote an article explaining the reasons why, despite the Candian dollar having surpassed the US dollar in value, goods in Canada still cost more. A significant part of the explanation has to do with the US dollar's status as the world's reserve currency.

Washington essentially prints the world's money and has since the end of the Second World War. All internationally traded commodities, most importantly oil, are priced in U.S. dollars.

"It gives the U.S. a huge privilege," says Prestowitz. "It means that Americans can buy and borrow in their own currency. So whereas you in Canada, if you want to buy a Toyota, you have to sell something to get U.S. dollars and then you go buy a Toyota. In America all we do is just print dollars and send the paper to Japan and we get the Toyota."

The danger isn't is that it's true, since it remains so for now, but in treating it as a truism. That is, believing that because the US dollar is the reserve currency now, it will remain so regardless of how badly the US handles it's finances.

Yesterday, I saw this story:

Foreign tourists to many of India's most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.

The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar.

Until now, foreign tourists to sites such at the Taj Mahal have had the option of paying in dollars or rupees.

By itself, the story is practically insignificant, but it isn't by itself. It's part of a growing trend of countries moving away from the US dollar where they can. Putin's continued threat to start selling oil in Euros, and China discussing diversifying their foreign currency holdings are far more significant shifts should they take place, and they yet may.

At some point, it makes more sense to sell the US dollar than wait around until your holdings in it are inflated into being worthless. When that happens, the truism of the US dollar as the world's reserve currency will burst over the catered-to US consumer in a very ugly way.