Three Agencies Agree that Dollar Will Continue to Bottom

Martin D. Weiss, Ph. D. takes a closer look at three government agencies opinions on the dollar. Dr. Weiss examines the long term outcome for the U.S. dollar according to three respected government agencies.

Three respected government agencies recently released reports and data that lead to the same conclusion about securing an investor's financial future. These three non-political, fact-based government reports pointed to a single outcome: A long-term decline in the U.S. dollar.

The first report was released from the U.S. Government Accountability Office (GAO), the auditing arm of the U.S. Congress. It warns that the nation's deficits and debts are now so overwhelming that America may face a fiscal disaster. Unfortunately, the warning has been looked over so much that GAO's head, David M. Walker, has recently resigned in the hope that he can get his message out more effectively on his own.

Walker believes the federal deficit's growth trajectory takes America on a veritable collision course with bankruptcy. According to the GAO, unless radical fiscal reform is instituted quickly, the U.S. federal deficit could reach 20% of GDP. State and local deficits are on a similar path. Thus, any efforts to shift some of the fiscal burden from federal to local governments will be futile. This potentially devastating growth in debt has little to do with the ups and downs in the economy and has everything to do with locked-in, predictable aging of our population. The bill is starting to come due: Nearly 80 million Americans will become eligible for Social Security retirement benefits over the next two decades. The burden of the government's future obligations for Social Security pales in comparison to the burden for Medicare. Even if the economy could somehow grow much faster, it would not be enough to solve the problem. If corrective action is not taken soon, when deficits get out of hand the only way to close the gap will be to cut federal spending by 60% or double all taxes.

Overall, the federal government's fiscal burden, including expected Social Security, Medicare and other liabilities, totals $50.5 trillion or $400,000 for every full-time worker in America.

According to the Fed's latest Flow of Funds report tabulating all U.S. credit market debts at year-end 2007:

- Corporate debts are more than double the size of the Treasury's;

- Mortgage debts are even larger; and

- The grand total, including all debt categories, is more than triple America's entire GDP.

As a whole, these debts are also a huge, long-term burden on the dollar for three fundamental reasons:

1. These $48.8 trillion in credit market debts are a continuing drag on the U.S. economy;

2. These debts are another major excuse for the Fed to pump in cheap money to ease the

burden; and

3. They are also a strong incentive for politicians to let the dollar fall in value, helping the government and other debtors repay their debts with cheaper money.

The final report, released by the Office of the Comptroller of the Currency (OCC), discusses derivatives and the fact that they are another form of debt. But based on the conclusions of the OCC, they are far riskier than ordinary debts. The amounts involved are excessive and they have grown at an alarming pace in recent years. Just 12 years ago, the total notional value of derivatives held by U.S. commercial banks was $16.8 trillion and at the end of 2007 it was $164.2 trillion. The credit risks associated with derivatives have also grown by 67%.

"For the longest time, the Money and Markets gurus have warned that big losses in derivatives could strike U.S. banks. And for the first time in history, that's precisely what has happened: In the fourth quarter of 2007, U.S. banks lost $9.97 billion in derivatives, proving how risky they really are. These risks are heavily concentrated among five major banks that account for 97% of all derivatives held in the U.S. banking system, and 87% of the credit exposure. Among four of these five banks, the credit exposure from derivatives is greater than their capital. And among two of the five the exposure is over four times their capital, again creating a negative long-term impact on the dollar. The derivatives crisis is aggravating the housing bust and the recession, the recession is bound to depress the dollar and as the Fed fights back with more injections of cheap money into the banking system, the long-term impact on the dollar is to drive it still lower," Dr. Weiss states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx3-govt-reports-spell-long-term-trouble-for-dollar-1754

About MARTIN D. WEISS & MONEY AND MARKETS     

Martin D. Weiss, Ph.D., founder and president of Weiss Research, Inc. and a leading advocate for investor safety, is a nationally recognized expert on domestic and international financial markets. With more than 35 years of experience, including many years in Latin America and Asia, Dr. Weiss has helped empower millions of investors to make better financial decisions through his monthly Safe Money Report and daily Money and Markets.

Dr. Weiss' keen understanding of foreign markets and the global economy has earned him a reputation for thoughtful, in-depth analysis that investors can rely upon to make informed financial decisions. Regularly called upon by the media for his independent investing guidance, he has been featured in publications nationwide, including The Wall Street Journal, The New York Times, Chicago Tribune, Investor's Business Daily, and Forbes and has also appeared on CNN and CNBC.

Throughout his career, Dr. Weiss has been an advocate for consumers and investors in the insurance, banking and brokerage industries, dedicating his time and resources providing analysis and data for Congressional testimony, constructive proposals for reforms in the securities industry and legislation for full financial disclosure as well sound accounting and fiscal policy. In November 2004, he launched the Sound Dollar Committee, a nonprofit organization dedicated to building a network of investors seeking to protect the nation's future by demanding honesty in government accounting, a balanced budget and sound economic policy.

Dr. Weiss is author of The New York Times best-seller, The Ultimate Safe Money Guide, which gave baby boomers a road map to grow their wealth safely. It was listed on the New York Times Business, Wall Street Journal, and BusinessWeek best-seller lists, as well as the Barron's Roundup for 2002.

Dr. Weiss holds a bachelor's degree from New York University, a Ph.D. from Columbia University and is fluent in eight European and Asian languages.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.




Three Agencies Agree that Dollar Will Continue to Bottom



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