We have reached a point in the financial system where our economy and government are once again at a currency crisis. As the dollar has fallen more than a full point in just the last two days, and news coming out yesterday shows that government borrowing will reach the top of the debt ceiling in just days rather than weeks, circumstances have created a perfect storm where choices must be made immediately, otherwise the government will have little capacity to stave off another crisis similar to the one in 2008.
On April 20th, well known commodities analyst James Turk did an interview on the parallels between the credit crisis of 2008, and the state of the dollar three years later. The biggest difference between then and now he pointed out, is that the rest of the world is not moving towards the dollar for safety, and in fact, is moving away from the dollar by selling US debt and dumping the currency.
With gold and silver hitting new highs and the dollar breaking to new recent lows, today King World News interviewed James Turk out of London. When asked about the US dollar decline Turk stated, “Here we are right at the lows and in fact we are actually now probing the November 2009 lows on the dollar index. The interesting thing is that the low in 2009 on the dollar index that is when the Greek crisis started to unravel and people went into the dollar as a safe haven.”
“And here we are right at those lows again, the Greek crisis is reemerging because apparently they are going to have to restructure those debts and there are going to be some losses taken, and no one is going to the dollar as a safe haven. To me that suggests that we are very close to this waterfall decline in the dollar that we have been talking about.” – King World News
The second factor of the perfect storm is a new report that also came out on April 20th that showed government spending is accelerating, and that the debt celing may he reached in just a matter of days instead of the projected date of May 16th by the Treasury department. If the debt ceiling is reached, then the government will not be able to sell more debt to stave off any potential crisis, and the dollar’s fall would bring a domino affect to economies around the world.
Federal borrowing is on pace to hit the legal limit on the national debt in less than a week.
As set in a law passed by Congress and signed by President Barack Obama on Feb. 12, 2010, the legal limit on the national debt is $14.2940 trillion. As of the close of business Tuesday, according to the Daily Treasury Statement released at 4:00 pm today, the portion of the national debt subject to this legal limit was $14.268365 trillion. (The total national debt, including the portion exempted from the legal limit, was $14.3205 trillion.)
This left the U.S. Treasury with the authority to borrow only an additional $25.635 billion before it hits the statutory debt limit. – CNS News
An additional factor that must be stated is the ratings downgrade that took place by the S&P earlier this week on the US itself. Back in 2008, the ratings agencies such as Moody’s and Standard and Poor were strongly criticized for not publically addressing the ratings of the toxic assets that led to the credit crisis. They were giving AAA ratings to what were essentially junk assets, and for them to now come out and downgrade the US itself, is a major indicator that they see the course America is on for what they know is sure to be a coming crisis on the dollar, and the US monetary system.
A perfect storm has arrived for the US monetary system and the dollar currency. It is a crisis that has come upon the government at a time when they have fewer bullets to fight the problem because of the coming debt ceiling limit, and where the rest of the world has no stomach to assist due to their own economic issues.