The country is “likely facing a series of downgrades” to its AAA rating, given that the economy’s total debt already represents 350% of GDP unprecedented, he said. In the Group of Seven, only Canada and Germany have the highest ratings.
Rosenberg, who launched Rosenberg Research & Associates Inc. in January after more than a decade as chief economist at Gluskin Sheff & Associates Inc., said Canada might be lucky to get away with cut to AA. He also said his call to drop the loonie to 60 US cents could end up being conservative. As of Friday afternoon, the Canadian dollar was just below 71 cents US.
The unrestrained growth in the money supply needed by the Bank of Canada to finance federal spending by buying new bonds will cause international investors to lose confidence in the relative value of the country’s currency, said Rosenberg.
“It will be interesting to see how a central bank which does not govern the world reserve currency and a country with a massive balance of payments deficit can ensure that all these generosity are reflected in the balance sheet of the BoC” without compromising the trusted by global investors, he said.
Rosenberg, who warned cautiously of a housing bubble in the United States in 2005 when he was chief economist in North America at Merrill Lynch, said: “The great increase in Canadian debt has come home, and this house will be in the national capital. “