Dollar is Doomed

The one benefit of the dollar was that it was a safe haven reserve currency.  It is losing that safe haven status because of the gigantic twin deficits, trade and budget.  The Fed isn't helping either with endless QE.  Who would have guessed that the euro would be relatively unchanged in the low 1.40s while the S&P tanks 200 points (with a European sovereign debt crisis) over 2 weeks?  In May of 2010, you had traders clamor for the dollar in those times of uncertainty.  Now you don't see that anymore.  Traders now clamor for gold.  Or Swiss franc.  Or yen.  Gold is now considered superior to the US dollar in times of uncertainty. 

S&P is the only ratings agency brave enough to point out the elephant in the room.  Taxation is the only way that a country can maintain the strength of its currency.   If you have no taxes, there are no government revenues, and thus no government.  That country's currency has no value.  A dependence on tax cuts to maintain a sound economy reduces the value of that currency, because the ability to tax is impaired.  Decreasing taxes without decreasing government spending increases the amount of currency in circulation.  Every single measure that the US government and the Fed has taken is dollar negative.  The Bush tax cuts, $300 checks in the mail, wars in Iraq and Afghanistan, TARP, 2009 stimulus package, the payroll tax cut holiday, etc.  The Fed has kicked it up to new unheard level of money printing adding 2 trillion to its balance sheet in 2 years.  And more is coming.  It is becoming a joke, because people are getting used to this insanity, and the market is begging for more.

Tax cuts are favored by both parties, Obama wants that payroll tax cut again because he knows without it next year, 2012 economy will get ugly and he has no chance to get re-elected.  So even though these tax cuts are temporary, they are the permanent temporary items that keep getting renewed. 

The S&P will never go back down to 666 low in March because of the weak dollar (The running joke of the world, the US Treasury strong dollar policy).  Look at Zimbabwe's stock market.  It is the top performer over the past 5 years.

Unless the US begins to embrace austerity and Bernanke is fired, you will continue to see the dollar go lower.  Commodities prices will remain high, and the government will continue to print out more phony CPI numbers.  QE3 will cause a stampede out of the dollar which will make your head spin.  Can you blame central banks for diversifying out of their dollars into other currencies and gold?  They see their currency adjusted returns in the toilet getting 1-2% on Treasuries while the dollar is getting flushed.  Sometime within the next 12 months, gold and silver will go parabolic.