My First Experience with the Consequences of the Global Market Economy

Exploring the Mind

The butterfly effect represents a notion in chaos theory that a small change in initial states can lead to dramatic changes later. The complexity, massiveness and speed at which money is moved around is mind boggling and somewhat scary. I've never paid much attention to my own money, much less the how supply and demand of certain goods and services drive the strength and weakness of various currencies. However, in June I moved to Canada to take a job in Toronto and am obviously paid in Canadian Dollars. At the time the exchange rate was 1.07 CAD to $1. However, since then the price index of barrels of crude oil have plummeted in response to massive over-supply, losing somewhere near 50% of its high price in mid-2014 value. Interestingly, Canadian Banks are heavily invested in Oil and with happy consumers at the gas pump come sad US citizens living in Canada trying to move their money back to the US as the exchange rate has fallen to 1.19 CAD to $1. It doesn't look like its getting better any time soon and I've essentially lost 10% of my salary without having my salary in Canadian dollars changed and I went from being paid slightly better than the NIH US post-doc scale to slightly worse than.

As far as I understand, the reason this is happening goes something like:

After I noticed this happening I wanted to understand why and discovered the petrodollar effect. From the article, the petrodollar originates in the 1970s when the US began to protect Saudi oil as long as it was sold in US$. Canada sells most of its oil through the US and thus sells oil in US$. In the early 1900s large reserves of conventional oil were found and then developed in Canada. In the mid-1900s a new source of oil in the form of tar sands but development was hindered by low profit margins. These fortunes turned at the start of the 21st century and high oil prices made it profitable to extract tar sands oil. However, now rising costs to extract and process the oil paired with global oversupply of oil causing decreases in pricing is making it hard to make a profit in tar sand and shale oil. So in 2015 as oil supply remains high and chances at profitability remain low the newer shale and tar sands projects are facing the chance of closing down. By keeping supply high and prices low, OPEC stands the chance to knock out the start-up competition and later grab a larger market share allowing them to have a greater influence on pricing.

In the end it is an eye opening experience. Its also amazing to watch how a product and a small number of business owners can interact to cause massive changes in currencies around the world.