The move out of the dollar has been stable and consistent. In 2002 it was 1.1 euro for one dollar. Today it is .78 euros for a dollar. Except for a brief rise at the end of 2005, it has been consistently down. It has been dollar denominated debt that has allowed the US to continue with deficit trade balances for years. In January a dollar bought about .86 Euros. Today that dollar buys about .78 Euros – a loss of 8 cents or almost 10% this year. So while the owner of the debt is being paid 5% by the U. S. Treasury, the currency exchange is costing him/her 10%. It is this negative interest that is funding the current US economy. We are buying foreign goods and services in dollars of debt and repaying them in devalued US dollars. Our trading partners are saying not any more. Even UAE is quitting us. Time to move out of the dollar.

My broker found me some Euro demonolater German and Netherlands government bonds paying about 2.5 to 3 percent. I’ll miss the current run up in the Dow, but the risk is a lot less. If the dollar vs. the euro continues its current trend – down – then the investment should yield 18% in dollars the middle of next year. The risk is that the Fed will stabilize the dollar by fixing the economy, or breaking it. That the trade deficit will go away as greater US exports pay for the imports is not likely. Other than food, I do not see much changing in the way of exports. For Americans to buy American, America would need to produce something here at home. Even an American car has 60% foreign parts. For Americans to stop buying everything foreign, they would need to be out of work. NO, these knuckleheads have really screwed up the economy to the point that it will take a recession/depression to begin to rebuild it. And with the world trade denominated in euros, there is not much chance that America will take leadership again. If and when OPEC denominates in euros our fate is sealed. I can only hope that we can still bring enough political pressure on OPEC to keep playing. Maybe that is what Iraq is about.

Man, I hope I am wrong! And I could be. If as the US economy turns down in a recession, so does the rest of the world. The US economy is the consumption engine that runs the worlds economy. China, Japan,Tai huan, Singapore, Germany and France all need the US to keep consuming to keep their domestic economies running. On top of that they need NATO or one of our other political organizations to keep safe. The US could stop the move out of dollars simply by threatening to bring the NATO or SEATO or . . . forces and “dollars” home. Another move could be tariffs on imported goods high enough to pay for the deficit. Forget the World Trade Organization (WTO) and start managing the US economy for the US. If others do not want to play, then they can go elsewhere to sell their goods and services. But unfortunately, I believe this will take a political will we do not have. Or the US could just stop creating dollars.

The M3 money supply (discontinued by the fed) will grow by a trillion dollars this year. Just say no. Stop increasing the supply of dollars, which has doubled since 1995, and stop the decline in the dollar. A dozen steps they could take to stabilize the dollar, but they will probably “stay the course”

But Dick Cheney said deficits don’t matter and Reagan proved it.

Deficits *do* matter, but maybe not for a few decades or they matter when the politicians are no longer in office.

Why should we be astonished when people take their home equity out and spend it thinking that they never have to pay it back. Homeowners can’t print money like the government can.

Parents can live very well if they have some means of making their children pay for it or maybe their neighbors’ children.

If you are so convinced of the downturn why would you not just go short or start buying puts as a hedge against this supposed downturn.

I ahve been accumulating the likes of SPI and PCU. Both high diveidend paying stocks. Very comparable to rental analoiges. As soon as the stock begin to trade sownward people eye the yield and prop it back up. Very nice equilibrium to this type of investing.

I have some of my cash in MERKX and what I like about it is that it doesn’t try to speculate in currency markets or chases higher yields etc. They go for the currencies of countries that have sound monetary policies. However, its expense ratio of 1.30% is just too high and for a big cash portoflio, you end up paying too much in fees. I would like something under 1%. Pimco also has currency or international bond funds.

By the way powayseller… you are getting a reputation out there, especially with Nouriel Roubini… Keep up the good work! I enjoy your comments.

powayseller,

I got the Euro bonds from my regular broker at Morgan Stanley. Any of the big brokerages can provide. To buy direct, last time I did it I went to Lugano Switzerland and opened an account at Credit Suisse, and bought them through the swiss acct.

My acountant tells me that if the acct is in europe, and the dollars are not repatriated, then the taxes are not owed until the money comes home. I have heard other opinions. But look at it this way, pay for a great week in Europe with a new euro bond as an investment in your swiss acct.

There is a fare chance that it will continue to fall…

Returning to the mean is relative… dollars are, like anything else affected by supply and demand. If the supply of dollars were consistent, then yes, we would return to the mean. However, that is far from the truth… the fed prints billions of new dollars, continuously adding to supply.

The amount of new dollars used to be a known number. The fed used to (until march of 2006) publish something called the M3. This number told investors the total number of dollars in circulation. For the past few years, this number has been growing at almost an exponential rate.

The reason the fed gave for discontinuing the M3 is totally bogus. They said that it cost to much money to compile this stats (funny statement coming for the people that print money out of thin air).

-Robby
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