Question: What is the impact on Canadian and U.S. markets when the U.S. dollar is no longer accorded world reserve currency status and when interest costs exceed $200 billion per year?
Reserve currency status brings with it a positive perception and substantial borrowing capacity. Beyond that, there is little practical impact for the companies of that country (the U.S.), especially given that they are increasingly less reliant on business in that country alone. Most large U.S. companies do more business outside the U.S. today than they do domestically and that percentage will grow as emerging markets develop further.
Interest costs in excess of US$200 billion a year wouldn’t have much impact. The amount is less than 1% of GDP and GDP typically grows 2-3% per year so that amount would be manageable. More importantly, the U.S. needs to get its fiscal house in order to avoid crowding out the private sector and to create a more hospitable environment for job creating private investment.
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