EconomicCrisis.US

President Obama’s 2011 budget proposal was so outrageously egregious that he had to hold a special press conference on Monday just to spin the news.

The scope of the proposed budget for fiscal 2011 is $3.8 trillion. The difference between revenue and expenditures for the current fiscal year will leave us with a deficit of $1.6 trillion. Amazingly, that shortfall will equal 10.6% of gross domestic product–the highest since World War II. For 2011, Obama’s own Office of Management and Budget projects the deficit will fall by just $300 billion to $1.3 trillion, or 8.3% of GDP, the second highest since WWII.
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The nation went through ‘Back-to-School’ shopping back in August and September with barely an uptick in the economy.

We went through the longer 2009 holiday shopping season with only a slight increase in purchases over the dismal 2008 level – in December, retail sales actually fell 0.3%.

All the while on the jobs front, we remained and remain mired in a jobless recovery, with nearly 20% real unemployment and 30 million women and men either unemployed or chronically underemployed, of whom 10 million have been out of work more than half a year. These millions of effectively unemployed workers now know firsthand the sharp and painful difference between the real unemployment rate and the official rate (at 10% nearly as high as at any time since the Great Depression, but still only half the effective real rate).
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Federal Reserve Board Chairman Ben Bernanke spent most of his speech to the American Economic Association on Jan. 3 responding to the critique that easy monetary policy during 2002-2005 contributed to the housing boom, to excessive risk taking, and thereby to the financial crisis.

Many have expressed the view that monetary policy was too easy during this period. They include editorial writers in this newspaper, former Fed policy makers such as Timothy Geithner (now the secretary of the Treasury), and academics such as business-cycle analyst Robert J. Gordon of Northwestern. But Mr. Bernanke focused most of his time on my research, especially on a well-known policy benchmark commonly known as the Taylor rule.
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It’s wildly fashionable among investment circles to bash the US Dollar’s prospects. Profligate US Government spending, our Federal Reserve’s easy money policies, and the soaring gold price are heralded as proof of the Dollar’s weak outlook. Investors are concerned that a weak Dollar will result in inflation, more expensive imports, capital leaving our shores and depreciation of Dollar denominated assets. While there are few things all investors can agree upon, many see the Dollar headed for ruin.

Bottom Line

Many investors are structuring their portfolios with an underlying assumption that the Dollar can only fall. They are flocking to commodities, foreign currencies, gold, overseas stocks and bonds and similar amid a widely held view that a continued collapse of the US Dollar will make them profitable. Similarly, they shun domestic stocks, particularly those with little or no foreign exposure, US Treasury debt, and Dollar oriented instruments because they’re viewed as providing little protection against Dollar weakness.
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