The Tipping Point of the Dollar

By Jennifer Bawden
March 29, 2009

A defining move by the Fed last week to buy billions in treasuries and Freddie and Fannie mortgage backed securities will change the world as we know it.

With the Fed buying 300 billion in treasuries I believe that day of reckoning has come! Martin Weiss of Money and Markets adds up the tally of government funds committed so far as close to 13 trillion. He also reports a total of 57.3 trillion in credit default swaps. This inevitably will push the dollar down.

I explained the perils of this stealth tax in my December 30, 2007 article; “I hear many smart financial people say ‘but Americans buy everything in dollars so it won’t really affect us much’. ‘It is great for increasing our exports’ they add.

Yes, it does at first, but products aren’t sold on price alone but design, promotion, etc. To them I say “Foreign countries and Americans sell commodities at the international price on the Chicago Market. Cocoa beans, chocolate, oil, plastics and soy beans are all paid in US dollars at the international prices.”

I continued on to warn; “The thought that you will not even hear whispered is that an unhinging of the reserve currency could happen and that would cause financial panic, plummeting stock markets, oil priced in the us dollar would rise way over $100 a barrel and the gold price, which has been shouting inflation, would quickly jump over $1000 an ounce as investors seek protection in safe havens.

The government’s reserves would be gone in a few days if it had to support a dollar dive. Conversely, if we keep our dollar strong, foreign capital from the developing world will buy the US dollar and help finance the huge liabilities of social security, Medicare and interest on the national debt.”

I also explained in my August 12, 2007 article; “If fear of US instability creates more selling of the dollar, interest rates will have to eventually rise considerably to lure the world back to buying the greenback.”

Foreign government saber rattling by Russia and China has finally brought attention to the viability of the US dollar as the world’s reserve currency.

Is a planned New World Order complete with a New World Currency backed by gold and silver all a part of the puppet show unfolding before our eyes?

The world’s mainstream news media has finally tackled this concept with questions last week to Bernanke, Geithner and President Obama asking if they were for a new world currency. Obviously they all said no. We know this issue will be well represented at the G20 meeting in London on April 2, 2009.

If a currency devaluation does come due to:

a) Massive spending and bailouts.

b) A fear based rush out of the dollar.

c) A planned devaluation of all G20 currencies.

Let’s look ahead at what will ensue.

As the dollar falls, you can bet on swift restrictions to moving money out of the country to safer currencies and banks.

Is the US FIAT currency in trouble? If the last 10 days are any indication of what is to come then yes, I think it is. In order to bolster the dollar we have to quickly reverse course to squeeze out inflation and excessive liquidity by raising interest rates. The fed policy is set and this is NOT part of the present plan. One day soon, inflation’s invisible tax will soar.

How much Keynesian spending does it take to purge deflation? When Japan opened the tap, their currency did not quickly fall off a cliff. Does this offer hope to the Greenback? As the FIAT Benjamin’s get caught like birds in the engine will Obama be able to make a safe crash landing?

Commodities, mainly gold and oil, are caught in the vice grip. On the one side are nervous Nellie’s who know as the dollar falls gold, silver and oil will rise. On the other are those who believe the market bottom is not yet in. Demand destruction and deflationary forces could still pull oil under $50 a barrel. Gold mining companies seasonally sell off in May. Will we see the plunge protection elephant use a spring market bounce to jump on Gold in May knowing this will put fear into even avid gold investor’s hearts? Probably.

If you took my recommendation in August or September to load up on Gold mining companies, although you should have good profits I would hold tight. If the price of gold does fall we will use the opportunity to buy more. Don’t expect prices to fall to 08 lows. This latest debasement of the dollar will just reaffirm China, Russia and the Middle East’s commitment to moving big capital into the yellow metal.

Other then gold, my 3 favorite ways to safeguard cash from a falling dollar are; the commodity rich currencies of Canada, Australia and Norway. (The Swiss Franc was borrowed en masse to make loans for Baltic country mortgages, many now under water.) If the Deflation Dragon still has more fire in him we may yet get another chance this summer to pick up gold, silver and oil at lower prices.

Jen Bawden

Jen is a best-selling author and serial social entrepreneur passionate about disruptive technologies, with a decade of experience in Homeland Security technology solutions. She is also a contributing author at Seeking Alpha, a top financial news site, and a member of several think tanks including: The Aspen Institute, TED, The National Committee on American Foreign Policy, Renaissance Weekend, Summit Series, Task Force on National & Homeland Security, & Secure the Grid Coalition.