Fiscal Meltdown Will Test the Bond and the Dollar to the Breaking Point

Don't blame the Democrats alone for this. Instead blame a political system that is corrupted by Wall Street and lobbyist money, and a mainstream media dominated by four corporations feeding a stream of managed news and perception spin to gullible US households.

The day of reckoning is nearly at hand, in which the currency crisis in the US will shake the financial foundations of the global economy.

"Outlays are rising at 17% YOY the fastest nominal pace since late 1981. With receipts falling 14.6% YOY their fastest drop in at least 40 years the gap between their growth rates is also the widest in the record.

All these rates are accelerating and are threatening to push the deficit to more than 50% of receipts and - at $1.1 trillion and rising - to more than 10% of private GDP."

Thanks to Sean Corrigan at Diapason Trading for this chart.

On This Morning's Worse Than Expected Economic News...

It looks like those 'green shoots' which Bernanke saw were, in fact, merely fungus growing on the rot of the economy which the Federal Reserve has engineered through long term manipulation, mismanagement, and malinvestment.

People without jobs, and in particular jobs that pay well, are not able to buy consumables and take on additional credit, much less service the debt which they have on things which they have already consumed. Mirabile dictu!

U.S. stocks tumbled on Wednesday as worse-than-expected retail sales hurt shares in the sector, including Wal-Mart Stores Inc, and dampened recent enthusiasm over the economic outlook.

Government data showed sales at retailers fell for a second straight month in April, after a string of more upbeat reports suggested a turning point in the economic cycle.

And the prices of imports and 'real goods' are increasing as the dollar and financial assets continues to collapse.

We remember the stagflation of the 1970's very well. If you did not experience it as an adult with financial obligations it will be a new and instructive experience in monetary policy and the fallibility of economists and financial engineering.

The U.S. Import Price Index rose 1.6 percent in April. A 15.4 percent increase in import petroleum prices more than offset a 0.4 percent decline in the price index for nonpetroleum imports. Export prices also rose in April, increasing 0.5 percent.

Its too early to forecast for stagflation, but it remains a very realistic outcome.

The US Dollar Rally Will End in a Crisis of Confidence

The constraint on the monetization being done by the Fed and Treasury is the value and acceptibility of the US dollar and bonds.

Export dependent countries should begin to prepare for a collapse in the US import markets. We expect this to happen earlier than 2010.

The invisible hand of the market moves slowly, but inexorably.

We expect this crisis in the US will resemble the crises in Argentina and Russia rather than Japan. The pain will be distributed heavily to those countries dependent on US dollar debt and consumer markets.

Nassim Taleb likes the protection of gold and copper. We prefer gold and silver, as it will be more difficult to increase its supply in the short term.

There will be serious discussion with regard to the annexation of Canada and Mexico into a North American government as the crisis worsens. Mexico should adopt a silver monetary standard and Canada must find its own economic independence again as it did in the Great Depression.

There is a strong likelihood that Obama will be a one term president at most unless he acts quickly to reform the growing corruption in the Democratic Party and within his own Administration.

Dollar Rally Will End, Rogers Says; May Short Stocks
By Chen Shiyin and Haslinda Amin

May 12 (Bloomberg) -- The dollar’s rally is set to end in a “currency crisis,” investor Jim Rogers said, adding that he may bet on a slide in equities after nine weeks of gains.

The advance in the U.S. currency has been driven by investors covering their short sales, Rogers, 66, said in an interview with Bloomberg Television in Singapore. He may consider adding to his holdings of the yen and prefers the euro to the dollar or the pound, the investor added.

“We’re going to have a currency crisis, probably this fall or the fall of 2010,” Rogers said. “It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

The dollar has climbed against all of the so-called Group of 10 currencies except the yen over the past 12 months, according to data compiled by Bloomberg. The U.S. currency was at $1.3592 per euro today from $1.3582.

Rogers joins “Black Swan” author Nassim Nicholas Taleb in avoiding the U.S. currency. Taleb told a May 7 conference in Singapore he preferred gold and copper to the dollar and the euro as the global economy faces a “big deflation.”

Gains in U.S. stocks also signal a “correction,” Rogers said. He’s avoiding equities for the next two to three years because prospects haven’t changed, he added.

Disclosure: Jesse is long gold and silver.

SP Futures Hourly Chart at 3:30 PM