The endless and eternally empty rhetoric from US Government officials repeating “we believe in a strong dollar” has the USDX literally flopping around *like a fish out of water*. The USDX is a measure of the value of the U.S. dollar relative to a majority of its most significant trading partners. Currently, this index is calculated by factoring in the exchange rates of six major world currencies: the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc.

Take a look at the chart 1 year chart:

After falling off a cliff late last year in December 2008, the US Dollar steadily increased ~13% through March 2009 to ~0.89. This happened as the Dow Jones Industrial Average tanked to the mid 6k range. Since that time, parallel to a resurgence in the DJIA to 10k, the US Dollar has been in quite a downward spiral decreasing ~16% to ~0.75.

The first time the DJIA crossed the 10k level was on March 3, 1999. At that time, the USDX was right around the ~1.00 level. What this means is that in the past 10 and ½ years, the DJIA has returned 0% from a pure numbers standpoint, but actually yielded a 25% loss if one factors in the purchasing power of the US Dollar per the weighted USDX index. Simply put, if you purchased a share of the DJIA in 1999 and simply held it till today, you would have lost 25% in what those dollars could buy you in today’s market. While I haven’t done the calculation myself, from what I have read, the figures are worse if you simply use “official inflation” over the last 10 years.

This is why awareness of inflation in order to protect yourself from its ravages is so extremely important. Measuring wealth without taking into account the unit of measure is like shooting a moving target blindfolded – while possible, it is a great deal harder to do.

UPDATE: Audit the Federal Reserve

http://www.auditthefed.com

• H.R. 1207: Federal Reserve Transparency Act of 2009 now has 304 co-sponsors, up from 303 last week.
• S. 604: Federal Reserve Sunshine Act of 2009 now has 30 co-sponsors, flat from 30 last week.

10/20/2009 Ron Paul talks Economics on CNN American Morning

http://www.youtube.com/watch?v=tHGzWFyYGNw

The Dollar Meltdown – What you can do about it – Glenn Beck and Charles Goyette “Hype it” (10/12/09)

http://www.youtube.com/watch?v=HuYUiAFsWNQ

Zeroing in on the dollar’s decline (10/21/09)

http://www.politico.com/news/stories/1009/28530.html

• On Tuesday, Matt Drudge ran a headline about the weakening U.S. dollar on his website, Drudgereport.com. In and of itself, that would be unremarkable, except that it was the 18th time Drudge had posted a link to a story about the weak dollar this month. – And October was only 20 days old.
• Drudge’s interest in the brutal year for the buck is intensifying. According to a search of the website DrudgeReportArchives.com, which is not affiliated with Drudge himself, the Internet pioneer has already posted more stories on the dollar in October than he did the month before, when he posted links to 13 stories about the currency.
• Other conservatives have been interested in the decline of the dollar as well this month. On Oct. 6, former Alaska Gov. Sarah Palin posted an item on her Facebook page reacting to the reports of an anti-dollar effort in the oil markets.
• “Even the possibility of such a talk weakens the dollar and renews fears about its continued viability as an international reserve currency,” Palin wrote. “In fact, today a United Nations official called for a new global reserve currency to replace the dollar and end our ‘privilege’ to run up huge deficits.”
• Traditionally, the dollar is a topic that politicians shy away from, since too-casually worded comments by officeholders can accidentally tank the currency markets. But that’s been changing in recent months as the decline of the dollar has mirrored larger concerns about the state of the U.S. economy and America’s place in the post-crash financial world order.

Hank Paulson Held A Secret Meeting With Goldman Sachs In Moscow (10/20/09)

http://www.businessinsider.com/hank-paulson-held-a-secret-meeting-with-goldman-sachs-in-moscow-2009-10

• During that long summer between the collapse of Bear Stearns and the collapse of Lehman Brothers, Hank Paulson held a secret meeting with the board of Goldman Sachs in Moscow.

Hedge manager Sprott sees trouble when easing ends (10/20/09)

http://www.marketwatch.com/story/hedge-manager-sprott-sees-trouble-when-easing-ends-2009-10-20

• Toronto-based Sprott called Citigroup, Fannie Mae, Freddie Mac, and General Motors “dead men walking” in late 2007. On Tuesday, he said the U.S. government is the new dead man walking, partly because it may struggle to keep borrowing enough money if the Federal Reserve stops buying Treasury bonds.
• Sprott’s Canadian hedge fund, Sprott Hedge Fund LP, is up more than 400% since inception in 2000 as it rode a surge in gold prices and shares of gold miners and other raw materials companies.
• The U.S. government has raised roughly 200% more by selling bonds this year, versus last year, Sprott noted. Through the end of the second quarter of 2009, he said the only major buyers of these government bonds were central banks.

We are ‘worried’ about weak dollar: Eurogroup chief (10/19/09)

http://www.breitbart.com/article.php?id=TX-PAR-HQF38&show_article=1

• The 16 countries that use the euro single currency are “worried” by the weakness of the dollar on currency markets, the head of the eurogroup said on Monday.

Bernanke urges US to cut budget deficit (10/19/09)

http://www.google.com/hostednews/ap/article/ALeqM5gQ6iVGh2tkgdbkyaZBrqeP-BqpdwD9BEA1E87

• Federal Reserve Chairman Ben Bernanke called Monday for the United States to whittle down its record-high budget deficits and for countries like China to get their consumers to spend more.
• Bernanke said the best way for the United States to increase savings is to steadily reduce the federal budget deficits. He didn’t suggest ways to do so.
• Fielding questions after his speech, Bernanke said the United States is in a “difficult fiscal situation” and that Congress and the White House must find ways to boost confidence in the U.S. economy and the dollar. He said he thinks those stakes are “very well understood in Washington.”

Gregg: U.S. could be on path to a ‘banana republic’ situation (10/18/09)

http://politicalticker.blogs.cnn.com/2009/10/18/gregg-u-s-could-be-on-path-to-a-banana-republic-situation/

• A leading fiscal mind on Capitol Hill and a one-time Obama Cabinet pick sounded the alarm Sunday over the projected long-term financial challenges the country faces.
• “This deficit is driven by us,” New Hampshire Republican Sen. Judd Gregg candidly said Sunday on CNN’s State of the Union when asked about the federal government’s projected $1.42 trillion operating deficit for the 2009 fiscal year.
• “You talk about systemic risk. The systemic risk today is the Congress of the United States,” the Ranking Republican on the Senate Budget Committee told CNN Chief National Correspondent John King, “that we’re creating these massive debts which we’re passing on to our children. We’re going to undermine fundamentally the quality of life for our children by doing this.”
• The figures, Gregg told King, “mean we’re basically on the path to a banana-republic-type of financial situation in this country. And you just can’t do that. You can’t keep running these [federal] programs out [into the future] and not paying for them. And you can’t keep throwing debt on top of debt.”
• “Standards of living will drop if we keep this up,” Gregg also said.

U.S. must live within its means: Geithner (10/17/09)

http://www.reuters.com/article/domesticNews/idUSTRE59G24A20091017

• The United States must live within its means once its economy recovers if it is to preserve global confidence in the U.S. dollar’s status, Treasury Secretary Timothy Geithner said on Friday.
• The comments came as the Obama administration reported a record U.S. budget deficit for the fiscal year ended September of $1.4 trillion. At 10 percent of gross domestic product, it was the biggest U.S. fiscal shortfall since World War Two.

Canadian Dollar Climbs Toward Parity as Stocks, Crude Oil Rally (10/17/09)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aU5OBX1AsQgA

• The Canadian dollar rallied for a third straight week, touching a 14-month high and moving closer to parity with its U.S. counterpart as signs of economic recovery pushed commodities and stocks higher.
• The probability that the Canadian currency will trade at C$1 per U.S. dollar at year-end is 60 percent, according to implied volatility from options trading monitored by Bloomberg. The chance of parity in one month is 42 percent, trading shows.

Iran to completely drop dollar from foreign exchange (10/17/09)

http://www.presstv.ir/detail.aspx?id=108867&sectionid=351020102

• Iran’s Trade Promotion Organization has announced a near future plan to completely exclude the US dollar from the country’s foreign revenues and reserves.
• Iran has recently asked Japan to replace the US dollar with the yen in oil deals it has with the Islamic Republic, Mehr News quoted the organization as saying on Friday.
• Iran suggests other currencies such as the euro and the United Arab Emirates’ dirham to replace the US dollar for oil revenues.
• The constant declining value of the dollar and persisting economic crisis in the US has forced many countries to drop the currency in favor of a more stable and valuable one.
• Saudi Arabia, South Korea, China, Venezuela, Sudan and Russia have taken steps to replace the US dollar in their foreign exchange reserves.

Fed Rates Will Hit 7-7.5% by 2011: Portfolio Manager (10/16/09)

http://www.cnbc.com/id/33345417

• Stocks continued to slide on Friday on some weak earnings reports that eclipsed strong results from big techs. John Lekas, CEO and portfolio manager of Leader Capital, and Scott Redler, chief strategic officer at T3live.com, shared their market views.
• Lekas said the reason oil prices are up is largely due to the weak dollar.
• “The dollar is going to go lower and it’s going to put the Fed in a reactionary position to raise rates to support the currency, and that is going to be another problem for the market-in addition to the oil problem,” he said.
• “I think the [Fed funds] rate will go to 7 to 7.5 percent by 2011.”

What Happens If the Dollar Crashes (10/14/09)

http://www.businessweek.com/magazine/content/09_43/b4152000801269.htm

• Trade wars could break out. Overexposed banks might collapse. And that’s just for starters
• The financial crisis taught us that markets can drop further and faster than anyone expects. Housing prices, for example, fell for three straight years starting in 2006, even though the conventional wisdom right up until the bust began was that prices would not fall even a little bit.
• Let’s apply some of our hard-won knowledge to the dollar, which is also supposed to be resistant to a bust. After weakening gradually since 2002, the greenback rose during the financial crisis last year.
• It has fallen roughly 15% since March as investors moved to higher-yielding currencies. The conventional wisdom is that at these levels the dollar is cheap and, if anything, due for a rebound. “Currencies don’t go much more than 20% from their long-term averages in real [inflation-adjusted] terms. We’re there already,” says Michael Dooley, an economist who is co-founder and research chief of Cabezon Capital Management, a San Francisco investment firm.
• Behind the dollar’s weakness are near-zero short-term U.S. interest rates. As they once did with yen, investors are borrowing dollars cheaply, then selling them to buy currencies of countries whose stocks and bonds promise better returns. The Federal Reserve is keeping the federal funds rate at a rock-bottom zero to 0.25% to stimulate the U.S. economy and heal the banks, but a side result is the dollar has turned into the preferred fuel for an international speculative play that is weighing down the greenback.
• Another force driving down the dollar: continued U.S. trade deficits, which the U.S. is paying for by borrowing from the rest of the world. Some economists and traders believe that eventually the U.S. will be forced to devalue its own currency to make its global debt more affordable. While the trade gap has narrowed to less than 3% of gross domestic product in the second quarter from 6% at its peak in 2006, it is still high by historical standards.
• Currency traders don’t put much stock in the statements of support for a strong dollar by Treasury Secretary Timothy F. Geithner and other Administration officials. They note that Treasury chiefs dating back to the Clinton Administration have said they support a strong dollar, yet the U.S. has not supported its currency through purchases since 1995.
• A lower dollar makes Americans poorer by cutting the purchasing power of their currency. And there’s no guarantee it would bolster U.S. industry, says David Malpass, president of New York research firm Encima Global. Malpass says the fall of the dollar in the late 1980s hurt rather than helped Detroit by giving Japan the buying power to strengthen its automakers. Says Mallpass: “We can make ourselves poor enough that we can’t import very much and we’ll have balanced trade. But how would that be good for the U.S.?”
• No one knows whether the dollar is headed for disaster. But assuming the best is perilous.

FDIC bank fund in the red until 2012 (10/14/09)

http://money.cnn.com/2009/10/14/news/companies/fdic_deposit_fund/?postversion=2009101415

• Even as regulators try to replenish deposit insurance fund, it will be over two years before it boasts a positive balance, warns agency chief.
• The government insurance fund designed to protect consumer bank deposits will likely stay in the red through 2012, Federal Deposit Insurance Corp. chief Sheila Bair said Wednesday.
• Testifying before members of the Senate Banking Committee, the nation’s top commercial bank regulator stressed that her agency was taking immediate steps to replenish the dwindling fund. But she said those efforts would not put the rescue fund in the black until a little more than two years from now at the earliest.

Highlights from “The International Forecaster” newsletter (10/21/09)

Published and Edited by: Bob Chapman

Check out or Subscribe to The International Forecaster

• The progenitors of this false economic policy, Keynesianism, have brought the distortion of price mechanisms, created unlimited opportunities for speculation and they have thrown all discipline to the wind. This is the basis for our current Federal Reserve System, which is the engine for such a philosophy. As a result of this policy we will be entering hyperinflation next year and the dollar will continue to fall in value.
• Even though gold and silver are suppressed, gold hit a new high this past week. The CRB index did as well with oil leading the way. This is all a manifestation of coming hyperinflation and a falling dollar.The Keynesians are pumping the money supply and monetizing domestic and foreign debt at a wild pace. The deflationary undertow continues strong as residential and commercial property prices continue their decent. The final impact is still two or more years away.
• There are few financial reports that do not include bogus accounting. The FASB changed the rules last year and allowed mark-to-model accounting. Let’s see if they reinstate mark-to-market January 1st. The Basel Accords have been simply ignored and no one discusses them. Exclusive of present on and off balance sheet losses, banks are going to get hit with more residential foreclosure losses and they will be hit by 35% more commercial losses over the next two years. If nothing else the banks cannot refinance perfectly good loans because they do not have the funds to do so.
• The big question for the banks is will the government perpetuate this fraud? We do not know, but we rather think they may for the good of the country. If fraud continues it will be for the benefit of Illuminists who run the banks, brokerage houses, insurance companies and transnational conglomerates. Either way again all they are doing is buying time; the end result will be the same. The banking, brokerage and insurance businesses are still broke. Nothing has been done to fix the underlying problem. There have been no structural changes, just the same old criminality. Any changes are patchwork for the public. Stimulus packages, home loan modification and $250 checks for seniors who will not get a COLA increase for the next three years. It is like the mad hatter has been set loose.
• Where are the tariffs on goods and services we so desperately need to bring production and jobs back from the third world? Without them everything else is futile. Offshore tax-free earnings, now some $1.3 trillion, are too juicy for the Illuminists to give up. Then again, what better way to destroy an economy, as we wrote in 1967 in the American Mercury?
• Borrow from the Federal Reserve at zero and lend to Treasury for a profit. That’s some racket. The banks have no incentive to lend. Most of them still have a significant amount of bad loans sitting on their books that they don’t want to recognize as nonperforming. If the banks recognize these bad loans, all the write-offs may force them into bankruptcy. Instead, they hope that over time renegotiated loan terms will eventually allow the borrowers to make their payments. This ordeal could last at least a decade if this cycle is similar to other crises, like Japan’s lost decade of the 1990s…banks can earn a huge spread by borrowing virtually unlimited amounts for nothing and lending that same money back to the Treasury.
• THE STOCK MARKET HAS BECOME A WEAK-DOLLAR constituency because a declining greenback boosts profits of multinational companies like Coca-Cola (KO) and Intel (INTC). Overall, companies in the S&P 500 get 30% of their revenues from abroad.
• Speculators, meanwhile, have been borrowing in dollars to buy a range of financial assets because of near-zero borrowing costs and the prospect of repaying those loans with a depreciated currency. The chances of the Fed moving away soon from a crisis-accommodative stance and near-zero short-term rates probably are small, because doves like Bernanke have the upper hand. There isn’t apt to be any political pressure to raise rates.
• That’s a shame. The Fed and the administration are playing a dangerous financial and fiscal game because ours is a debtor nation that depends on the confidence of overseas creditors. If a resilient U.S. economy can’t tolerate 1% or 2% short rates, this country really is in bad shape.
• President Obama plans to tackle the deficit in 2010. Tax hikes and spending cuts are being discussed. The plan is likely to be announced in Obama’s State of the Union Speech in January.
• Any combination of tax hikes and budget cuts will greatly impair the fragile US economy. along with terrible earnings for financial companies.