The second anniversary of the credit crisis has arrived and, in the light of the plethora of fiscal and monetary policy initiatives, it makes for interesting reading to reflect upon how the US economic landscape has changed since the start of the crunch.

• Fed funds rate: down from 5.25% to zero

• Fiscal deficit: up from 2% to 13%

• Mortgage rates: down from 6.5% to 4.7%

• Home affordability: 70% improvement

• Fed’s balance sheet: up from $850 billion to $2 trillion

Yes, the Fed has tried just about everything, and yet real GDP growth is negative at about 5% and the unemployment rate has doubled to almost 10% over the past two years.

David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years ago … the US dollar. “It is the only policy tool that has not budged one iota since the crisis erupted two years ago. But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, it would make perfect sense for a country that always operates in its best interest – even if it may not be in everyone’s best interest – to sanction a US dollar devaluation as a means to stimulate the domestic economy,” he said.

It follows that Rosenberg is of the opinion the greenback has significant downside potential. He therefore suggests that investors should start thinking about protecting their portfolios against a declining dollar by taking positions in commodities, gold, the Canadian dollar, resource stocks and US sectors that have high foreign exposure (materials, industrials, staples, health care).

For more on the most likely short-term direction of the US dollar, Adam Hewison’s ( short technical analysis provides valuable insight. Click here to access the presentation. (Adam also covered the outlook for gold bullion in a recent analysis. Click here to view his outlook for the yellow metal.)


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