A Dollar Bubble?

This is never explained in depth in the media because 99% of the population doesn't understand how this works. I don't fully understand how it works, but I know enough to be dangerous.


This past week the dollar has been making a huge rally. You can always tell when the dollar is making a rally because gas prices go down. The question that is plaguing many market experts is, "How?" The Fed has dropped interest rates, bought bad debt, and injected cash into the financial sector. All of this spells inflation, which always leads to a weak dollar. So why is the dollar so bullish?


In the first place, stocks are in the crapper, commodities are sliding, and the only safe place to put your savings is in a shoebox under the mattress, or government bonds. Foreign governments are also concerned about their investments, because the purchasing power of the United States drives their export business. Many governments intentionally keep their own currencies undervalued and invest in dollars in order to prop up U.S. purchasing power. When U.S. consumers are buying, their factories are working overtime. For some reason they don't think this will catch up with them. That's what's happening today. The printing presses of the world are running in order purchase U.S. Dollars (our printing presses are running to keep up with the demand) so that these nations can buy government bonds. In case you weren't aware, I don't believe you can buy government bonds in Euros. You can only buy them in dollars.


So, in these troubled times, the only safe place to put your nest egg seems to be in U.S. Government Bonds, and the only way to buy those bonds is to convert your own currency for dollars. Additionally, the only way to keep the factories running, is to increase the purchasing power of the dollar, which means buying more dollars and purchasing more government bonds.


It's crazy, isn't it? It can't possibly work, can it? If you're thinking this is a global Ponzi scheme, you're right. There is a great video on YouTube that explains how this works.

So when will the proverbial "other shoe" drop? Well, it might happen when all of this new money is spent in the U.S., or it might happen when all of this debt is due. It might be both. We may experience a rather painful correction in the next year when all of this new money floods the market, creating more bad investments & speculation and running up the price of gas. With all that behind us we may still find that the worst is yet to come when the U.S. government has to come up with $10 trillion dollars (or whatever ungodly amount it will eventually be) to pay off all of the foreign debt it owes.