US continues to spend about $200 billion more then it takes in, and the trade deficit is more than $700 billion annually. Inflation and unemployment are rising. Oil and gold are near or at all time highs, commodity prices are raising. Corn and wheat prices have doubled in the last 2 years.

The media continues to sing kum-bay-yah to convince us to spend, but dollar weakness is a great cause for concern.  In 1998 the dollar index was 100.  It is now about 73, a decline of over 25%. The decline since 2001 is closer to 40%.  Why should we believe that the dollar will strengthen when we have budget deficits of more than 9.2 trillion, which is about $30,000 per person in the country? In addition to the national debt private debt in mortgages and other obligation further adds to the receipt currency, and will contribute to the diminishing value of the dollar.

The welfare state costs US taxpayers more than any other line item, and interest on the national debt of $400 billion per year is the third largest line item on the balance sheet behind defense spending.  Raising taxes, cutting welfare or defense spending are not likely to happen.  Warren Buffet said that the US trade imbalance is the biggest threat to the economy.  Foreign nations, including Red China own $3 trillion more of the US then we own of them.

As investors in treasuries discover that their return is in depreciated dollars, the US will have to offer them higher interest rates. Even worse, if foreign investors decide to liquidate their treasury holdings, the dollar is likely to completely collapse.

Home prices are likely to continue to fall.  Abandoned homes are twice the historical average.  If the Fed attempts to offer lower rates for home mortgages, this will increase the money supply and further depreciate the dollar.  The Fed has stopped publishing data regarding the money supply, but money debasement has grown at a rate of 17% annually.  This represents a hidden tax on all income levels.

If foreign investors in treasuries decide to repatriate the US dollar the result will be catastrophic. By some estimates there are $7 trillion dollars due foreign investors, and Red China alone holds $1.3 trillion in treasuries.  The rumblings continue that foreign nations are dissatisfied with using the US dollar as the world’s reserve currency. Whether these threats are an attempt to manipulate the US Government, or will result in dumping the dollar, in either case the domestic economy will suffer.