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In August, 2011, a big kerfuffle arose as the United States Government debt approached the ceiling of 14.3 Trillion dollars.
Those who are new to the markets or have forgotten the events of August, 2011 can click here for a walk down memory lane.
Essentially, the US maxed out their credit card and then gave themselves a credit limit increase. Like many at the time, I wondered how this could be considered a positive move.
I am writing this article on Tuesday, September 4, 2012 – just before I go on holiday to the Gold Coast. At the time of writing, the total US Government Debt figure stands at 15.99 trillion dollars. Sometime this week that debt will exceed 16 trillion dollars.
To put that number in perspective, if the US government were borrowing interest free (and they are not) and were to pay off 100 million dollars a day, it would take them more than 438 YEARS to repay the total debt.
Think about that.
14.3 trillion dollars was considered a problem last year and I am sure we will hear a lot more about the 16 trillion dollar debt in the months ahead.
The new debt ceiling is 16.394 trillion dollars and at the rate the debt is increasing, there is every chance that this will be reached by the end of this year.
If the US Government does not act swiftly and emphatically, there is every chance that one or both of the following outcomes will occur: They will need to print more money to pay their debts and/or borrowers will eventually refuse to lend to the US government.
Either of these scenarios will have severe consequences for the value of the US Dollar.
Chart 1 below shows that the Australian Dollar is trading near record high post-float prices against the US Dollar: Chart 1
click to enlarge
Chart 2 below shows that the US Dollar is trading near record lows against the Japanese Yen. (Japan has its own debt challenges looming.) Chart 2
click to enlarge
Don’t be fooled by the fact that a market is trading near at its All-Time-Low. Markets can go a lot further than people think. If you doubt that, open a chart of AIG on the NYSE.
In April of 2009, I ran a Currency Forecasting Seminar based around the US Dollar bear market that I believed would unfold over the years ahead. The market has continued the same pattern I was watching in 2009 and nothing has changed in the shape of the market.
I will be reviewing this forecast in my upcoming Currency Forecasting Online Seminar on 22 September. This will be the last of these online forecasting events I will be conducting in this format and it is nearly sold out, so if you were planning on coming along, contact the office to reserve your space by emailing accountmanager@safetyinthemarket.com.au.
During this seminar, I will cover the connection and similarities between that 2009 forecast and the current movements on the US Dollar.
We will also investigate the famous George Soros ‘Billion Dollar Trade’ on the British Pound from September, 1992. For those who have not studied it, Chart 3 below displays the collapse of the British Pound in September, 1992. Chart 3
click to enlarge
At the seminar we will look at the story of the Pound as it unfolded in the years leading up to its collapse in 1992 and I will show you how the US Dollar is tracking along the same path today.
This is a lesson I have never taught before and have no plans of teaching anywhere else. If you are interested in the agenda of my Currency Forecasting Online Seminar on 22 September, you can view a short explanatory video here.
There is no doubt in my mind that the US Dollar bear market has further to go – the only issues are how far it will go and how long it will take to get there.
Be Prepared!
Mathew Barnes
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