Canada’s currency will depreciate sharply and its credit rating will suffer as the federal government is forced to “backstop everyone,” rolling out more assistance for provinces, companies and households, according to economist David Rosenberg.

The country is “likely facing a series of downgrades” to its AAA rating, given that the total debt in the economy is already an unprecedented 350 per cent of GDP, he said. In the Group of Seven, only Canada and Germany have the highest rating.

Rosenberg, who started Rosenberg Research & Associates Inc. in January after more than a decade as chief economist at Gluskin Sheff & Associates Inc., said Canada may be lucky to escape with a cut to AA. He also said his call for the loonie to drop to 60 cents US may end up being conservative. The Canadian dollar was just below 71 cents US late Friday afternoon.

The rampant growth in money supply required for the Bank of Canada to fund federal spending by purchasing new bonds will cause international investors to lose confidence in the relative value of the country’s currency, Rosenberg said

“It will be interesting to see how a central bank that does not govern over the world’s reserve currency and a country with a massive balance-of-payments deficit will be able to have all of this largesse find its way onto the BoC balance sheet” without jeopardizing global investor confidence, he said.

Rosenberg, who presciently warned of a U.S. housing bubble in 2005 when he was chief North American economist at Merrill Lynch, said “the Great Canadian Debt Surge has come home to roost, and that home is going to be in the nation’s capital.”