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Ever since Robert Rubin began the tradition in the mid-1990s, it has been a significant element of the Treasury Secretary's job description to continuously state that a strong dollar is in the national interest. It is widely regarded that such utterances, if repeated often enough, can constitute the sum total of what is still laughingly known as the nation's "strong dollar policy."

Over the past two generations, the American government has launched many failed campaigns. To name just a few, there has been the war on drugs, the war on poverty, and the continued attempts to improve education. But the strong dollar policy must be seen as the poster child for all failed Federal policies. However, many in the market took cheer that the policy is now being greatly expanded. In an unprecedented move, the Fed Chairman is now adding his voice to the chorus and using the same rhetoric previously used by Treasury alone. That's two people saying the words....not just one. A double barrel strong dollar policy!

As the administration is so fond of saying, a nation's currency reflects the underlying strength of its economy, and in that sense can be seen as a nation's economic report card. In truth, a strong currency is in the interest of every nation, just as good grades are in the interest of every student. Using this basic analogy, a flunking student cannot improve his grades by simply telling his parents, teachers, and fellow students that he has adopted a "straight A policy." If his words are not accompanied by a change in actual behavior, whereby he stops cutting class, and starts studying more, his new policy is unlikely to achieve results. So long as his bad habits persist, the policy will not be any more effective simply because one of his friends chimes in.

In his speech this past Tuesday, Ben Bernanke finally admitted that the weakness in the dollar was contributing to both higher inflation and elevated inflation expectations. This stands in stark contrast to his recent testimony in front of the House Banking Committee, where in response to a question asked by Congressman Ron Paul, he confidently declared that the weakness of the dollar only effected Americans who travel abroad. It is amazing how little attention this complete reversal received.

The media of course wasted no time in declaring that Bernanke's speech heralded the opening of a new front in the campaign against the falling dollar. For example, CNBC's Larry Kudlow proclaimed that Bernanke had endorsed "King Dollar" (someone needs to remind Kudlow that the king has long since abdicated his throne) and the network ran an entire segment on how to profit from the new dollar rally. All of this because Bernanke merely mentioned the dollar, acknowledged its effects on inflation, and expressed concern for its plight. As far as the media and Wall Street are concerned, words without action are enough. Too bad that's not the way things work here on the planet Earth.

The real take away from Bernanke's comment is not that the dollar is about to rally, but that it is now more likely to sink even lower. I believe the main reason Bernanke has refrained from mentioning the dollar in the past is that he did not want to be put in a position of actually having to do something about its decline. He is now so fearful of an imminent dollar collapse that he must have felt compelled to throw down the gauntlet despite his fear that someone might actually pick it up.

My guess is that currency traders will ultimately see this as an act of desperation. When the dollar keeps falling a chorus will swell to demand that the Fed put teeth in its new policy. If Bernanke does nothing the world will finally see a naked emperor and the dollar's decline will turn into a rout. If, on the other hand, the Fed raises rates to defend the dollar, and only a short term bounce results, then all remaining confidence in the Fed's ability to support the dollar will evaporate as well. This is probably Bernanke's greatest fear and is likely the main reason he waited so long before mentioning the dollar. The fact that he felt compelled to do so now likely means he knows the game is coming to an end. Got gold?

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse." 
 

 

 

June 7, 2008: Nancy West

Bruce Norris is joined by marketing and outreach specialist for U.S. Department of Housing and Urban Development, Nancy West. Bruce and Nancy discuss when HUD was created, the FHA program and its primary goals, how home ownership levels and foreclosure levels are related, hud.gov compared to fha.gov, the FHA Secure program that allows borrows who have fallen delinquent to come into an FHA program if the delinquency was caused by reset, what happens if the consumer owes more than the house is worth, when FHA secure is due to expire, the three option for delinquent consumers, renegotiations and modifications, loan forgiveness, how well the program is going, where money comes from when an FHA loan is funded, loan correspondents when working with FHA, how FHA differs from Fannie Mae and Freddie Mac, how FHA differs from PMI, the enacted Stimulus Act, FHA and manual underwriting, how FHA views a consumer's willingness to pay obligations, FHA as a more common sense approach to lending, FHA requirements and standards for property, the process to become an approved FHA appraiser, gift programs for down payment allowable for FHA, single family for FHA includes up to four units and manufactured loans, loan limits in FHA, how often loan amounts are revisited, current loan limits and the Stimulus Act, how limits will go back to original limits on December 31, 2008, loan limits set by Congress, Section 8 rental program, foreclosing on FHA loans and when FHA steps in to protect a lender's loss, if there's a situation when the lender would be forced to take a loss, if fraud has been a problem with FHA, where the money come from when a claim is made, if FHA is expecting a huge number of foreclosures, the issue of the consumer being a victim in the mortgage mess, how long the FHA Secure process takes, loans available through FHA including fixed rate, adjustable, energy efficient, rehabilitation program (203K), and the streamlined rehabilitation program, why the 203K loan is not available to investors, why the program was available to investors in the 90s, how can investors get involved to get that reversed, do most buyers obtain fixed rate loans, and www.fha.gov. 

 

 

 

(Sep 18, 2007)- "If the dollar loses value too quickly, it could wreak havoc on the economy and financial markets - driving up interest rates and inflation and slashing Americans' purchasing power" -Peter Schiff 

 

(Sep 19, 2007)- "People keep talking about Fed bailouts as if there is no cost. All the Fed can do is create new dollars. What that does is diminish the value of all the dollars everybody already has. They try to socialize the losses among all the holders of dollars" -Peter Schiff

 

(Aug 16, 2007)- "The housing bubble has burst. Prices are going to collapse and sales are going to fall through the floor." -Peter Schiff 

 

June 5 -- More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb. The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007. The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007. The seasonally-adjusted rate of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans, or 6.4%, have missed at least one payment, while about 737,000 are at least three months past due, but not yet in foreclosure....................


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(Sep 21, 2007)- "With the Federal Funds Rate cut, the Fed revealed that it has no interest in defending the dollar or containing inflation. This kind of irresponsibility is all gold needs to move higher from its current levels unless the Fed somehow finds its backbone within a year or two, then gold has a good chance to take out its inflation-adjusted high of nearly $2,000 per ounce within this decade." -Peter Schiff

 

 

(July 31, 2007)- "It's going to soon hit $90 and go north of $100 next year. We should see $150 to $200 oil in the next two to three years because of the drop in the dollar.'' -Peter Schiff