HEART SENTRY - By lexingtonBioSciences.com

Friday, May 29, 2009

U.S. Dollar headed South - Will it's economy follow?

American International Group, Inc.Image via Wikipedia

On January 13th I noted on this blog that I felt the usd was due for a dive and I pointed out that, because of this, and the fact we are better positioned to ride out the recession than our G20 partners (plus our abundance of commodities) I felt our Canadian Dollar was due for a sharp upward swing.

I also said I had then sold my usd cash into Canadian dollars and predicted it would go to .90 at least.

At that time, the cad was at .79 us and I am glad to report that yesterday it went over the .90 barrier.

That occurred much earlier than I anticipated and Now, to expand on that, I believe it will go to parity by the end of this year.

If you are sitting on u.s. cash holdings because you think it is safe, then think again.

The good ol usd is the most unsafe place to hold value. It is one of the main reasons for the stock rally of late. (and the fact major hedge funds are stocking up on Gold and other precious metals)

Now, if you believe, as I do, (and hedge fund managers obviously do) that a 1.7 $Trillion deficit this year, added directly to a 9 $Trillion national debt in the U.S.A., coupled with the unprecedented government ownership of major banking and industrial companies, will lead to a rapid rate of inflation in America, then you must ask yourself these two questions:

1. What will my Retirefund look like in 3 years time?

2. How can I protect what I still have?

Now, while I am in this pessimistic mood, let me put some more holes in the boat!

1. The U.S. has been suffering the loss of 500,000 to 650,000 jobs per month, for 8 months, with no respite.

2. The jobless rate will (according to U.S. Government numbers) exceed 10.3 percent this year. (and no one is willing to speculate where that number will top out).

3. 30% of home owners in the U.S. now owe more money on their home than it is worth>

4. War in Iraq, War in Afghanistan, and now Pakistan and North Korea are on the edge and the World Health Organization (WHO) is preparing for a possible mutation in the Swine Flu, that will manifest itself this fall.

5. Who will buy more U.S. Government debt, certainly not China, the largest holder of such debt who are now grumbling about the devaluation of those holdings.

6. And finally, What does America still make, that the rest of the world wants?

Ever heard of "Stagflation"?

Now lets sink the boat!

When the American Banking giants released their earnings this spring, and surprised everyone with what appears to be healthy earnings reports, did they include the $Trillions still on their books, of Derivatives ( referred to by pundits as "The toxic assets")
That answer is a resounding "NO"!

What are those assets? Lets draw a very simple analogy shall we?

I own a house in Phoenix, and I wanted to leverage that asset.

After giving me a new mortgage, my bank sold 10% shares in my house to a total of 33 different people and businesses. These shares are supposed to be "Derived" from the initial asset, the house! The Bank then convinces a major insurer to insure these derivative products, for a fee of course.

When hard times hit the owners of these pieces of paper, they try to cash them in at the bank.

Obviously, the bank can't pay 33 people each 10% of that Mortgage and they default to the insurer.

Do you know where the first large bailout payments went! Yes, your U.S. tax dollars!!

The money flowed through AIG, and into the pockets of Barclays Bank in London, and Deutche Bank in Germany.

Over $60 Billion each.

And that was just the first payment!

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