Stimulating American policies such as the trinity of money printing, sustained low nominal interest rates, and government “spend-and-borrow now/pay later somehow” only buy time. They delay reckoning rather than really solve underlying problems. The broad real trade weighted dollar (“TWD”) rests near the major support of its all-time lows (1973-present). As marketplace players turn the floodlights more and more closely on America, the broad real trade weighted dollar will fall under its 84.00 floor by at least five percent to around 80.00.

All else equal, and in an environment of unappealing interest rates, the greater (and faster) the TWD’s dive under all-time lows around 84.00, the less desirable American assets in general and debt in particular will appear to actual and potential owners (especially overseas players).

A dive of around five percent beneath that major TWD support would help to raise interest rates in general, including yields within the control of the Federal Reserve Board (rates probably would rise at least until equity prices began to plummet substantially). Would diminishing dollar values deliver long run deficit discipline in the US Congress? Not quickly, but one always can hope.

So the United States confronts enormous deficits now and in the future. There is troublesome and often misleading rhetoric from and loud quarrels within Congress. Admittedly many American politicians have been braying, grunting, and squawking about fiscal discipline, yet when will there be major tangible actions? If the US federal government were a household, would you say it was well-managed right now? Nowadays, would you want to lend it a big bucket filled with your cash?

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Keeping It Real- The Dolorous Dollar (Desperate Housewives, Episode 6)