Wednesday, November 25, 2009

Dilly Dollar Daze in the USA - What's next?

Rare 1934 $500 Federal Reserve Note, featuring...Image via Wikipedia

The American dollar has taken a hit against every major currency this year, and there may be more pain (or gain depending on your view) to come. From the Euro to the Yen, the greenback has taken a beating. Even the Canadian dollar and the Australian dollar have gained 25% or more on the greenback this year. $500 bucks ain't what it used to be.

Back in January, $500 usd would buy approx $625 Canadian or $375 Euros. Today that same $500 buys only $535 Canadian or $333 Euro. As Americans continue to travel abroad, they are painfully reminded of their reduced (and still reducing) purchasing power. As 2010 progresses, I believe that the non traveling U.S. public will become very aware of their reducing wealth as denominated in the greenback. Smart Americans are in this stock rally or invested in gold and other commodities, or both. Better stores of value are sought in the market every day and this trend will continue, albeit with some hiccups, as 2010 becomes even more of a watershed year for the giant U.S. economy.

The Elephant in the room is the giant and growing U.S. Debt which now exceeds $12 Trillion dollars and is growing daily, with no end in sight. It is why the dollar is still declining and will through much of 2010. 30,000 more troops for war in Afghanistan, $1 Trillion over the next 10 years for medicare, bailouts and bombshells and the list goes on, with nothing to stop the bleeding at this point. Here is the daily update on the U.S. deficit clock.

India is buying up Gold for it's foreign reserves. China is following suit. Russia is adding Canadian dollars to it's foreign reserves. Individual investors and investor groups from Beijing to Brazil are stocking up on gold and especially gold stocks. This does not bode well for the greenback, or for the standard of living in the good ole U.S. of A. At over $12 Trillion in debt (and counting) and with two unfunded wars being prosecuted on three fronts, not to mention the health care debacle, both spending cuts and new taxes are the medicine needed to stabilize this sick fiscal patient, before he goes into a coma for the next ten years.

Doctor Obama, it's time for your Uncle Sam to take his medicine and there is no sugar to sweeten the taste. Let's get on with it, before it gets any worse (unless of course, the medicine is hyper inflation over the next three years or so). If that is the diagnosis, then gold will double in the next 12 months.

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