Q&A: U.S. dollar collapse

Question: Could you please comment on the consequences as you see them of a possible U.S. dollar collapse? There have been prognostications of this by both investment gurus (Peter Schiff as an example) and academics. What might be the implications for the Canadian dollar?

I am just about to buy some of those high-yielding GICs you mentioned in the most recent Internet Wealth Builder newsletter, but am spooked. The mattress or gold look better and better; just joking, sort of, she said with a wry grin. As always, I appreciate your advice, especially during these turbulent times. – Liza H.

Gordon Pape answers: The theory of a U.S. dollar collapse rests on the assumption that investors will eventually flee from the greenback once economic stability returns and the magnitude of the U.S. deficit becomes apparent. Part of this scenario includes a downgrade in the debt rating of the U.S. government, which seems a little far-fetched.

No one knows if things will play out that way. Right now, the greenback is regarded as a “safe haven” currency and money is pouring into U.S. Treasury bonds. This is one of the reasons why the loonie has taken such a steep plunge recently.

If the U.S. dollar drops, our currency could appreciate to par again but a lot will depend on the state of the commodity markets and our own government finances at that point. In short, there is no clear answer – the loonie could be dragged down with the greenback under some conditions, whereas under others it could rise.

ne thing is likely – if the U.S. dollar falls, gold will probably appreciate. The two historically move in opposite directions

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