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Friday, July 22, 2011

US Dollar headed for disaster

We have full blown monetary crisis brewing in Ireland, Greece, Portugal, Spain, and Italy. We have seen Iceland collapse. Countries have fallen to political, but I contend economic pressures.
It has been dubbed Arab Spring, and has resulted in revolution in Tunisia and Egypt. About 10 other countries in the region experienced uprisings that failed to over throw their governments.

There is no doubt, in any rational person's mind, that the last year has been nothing like the previous 40 years when it comes to western country stability.

The question is, will anything of significance happen in the USA. Each day of poor fiscal decisions draws the US closer to an event to occur. That is most likely to be the loss of the US dollar as the world' reserve currency, and eventual assault on US debt credit worthiness.

Once this line is crossed, I am very skeptical that we can ever recover with the current system. Nothing short of a complete overhaul of the financial system will be required to restore faith.

Today I have graphs for you from Zero Hedge, one that shows the US debt to GDP ratio. Not since World War 2 has America crossed the line of debt higher than GDP. And even then the steepness of debt creation was not as severe as our current assent over the last decade.

The second graph is a bit of trickery, for the two items gold value and US debt levels are not correlated. The two graphs have been scaled to look like they are. The key item for me isn't the scaling of gold value to US debt. The key item is how the TIMELINE does match for gold's value rise and US debt rising. So while we can ignore the alignment of gold value to debt level, it is difficult if not impossible to dismiss the timeline of golds rise with US debt. I still contend that the rise of gold is due to China and India's rise, but possible related to US debt because they are increasing their creditor status as US increases it's debt.

Third graph is USD vs other major currencies valuation, latest graph always available here.

The purpose of these graphs today is food for thought, is America so mighty, no matter what it does it cannot be injured? I think not. With enough bad decisions, even the likes of Lehman Brothers, Merrill Lynch, AIG, Bank of America, Freddie Mac, Fannie Mae, IndyMac, and over 467 US banks have failed since 2007. If US financial institutions can fail as such epic and breathtaking volumes, so in my opinion can the US itself.

Both compliments of Zero Hedge, and thanks to my friend Mr. Karl for the article link.

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