Keith Fitz-Gerald says the US could face a currency crisis in the next few years. The dollar is being propped up by massive Fed and Treasury intervention. But the long-term damage has already been done. Keith says speculation that markets could be shut down while the global financial rulebook is rewritten might not be too far off the mark…

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As for the U.S. dollar, after years of benign neglect, the U.S. Federal Reserve and U.S. Treasury Department will do everything they can to prop up the credit markets, In the short term, most investors will misconstrue this as a legitimate rise, all that’s really happening is that longstanding risks are being overcome by governmental guarantees.

Longer term, the damage has been done. No nation I am aware of in recorded history has done more than temporarily dodge the inevitable by debasing its currency as the United States is doing right now. And that’s why – at the risk of inflaming yet another bunch of Wall Street folks – I’m increasingly of the opinion that the United States is headed for a major currency crisis in the next few years. Wall Street doesn’t see it, and I sure hope that I’m wrong.

For the same set of reasons, I don’t think that investors should be the least bit surprised if U.S. regulators (in conjunction with their counterparts overseas) actually shut down the financial markets for a week or two while they try to sort out the credit crisis and reevaluate currency relationships that are right now being pushed to the brink of oblivion.

While this is regarded as impossibility by many – and simply incomprehensible by others – Bloomberg News reported Oct.10 that Italian Prime Minister Silvio Berlusconi said world leaders were discussing shutting down global exchanges. He later retracted his comments, saying that he didn’t mean what he said.

But I think he (Berlusconi) did, and I believe they (U.S. regulators) are.

There are historical precedents for so-called “bank holidays,” even here in the United States. In fact, the New York Stock Exchange closed its doors from March 4-14, 1933 as part of U.S. President Franklin Delano Roosevelt’s forced holiday (Emergency Banking Act), and did so again from Sept. 11-17, 2001 following the terrorist attacks against the US.

In both instances, what’s critical to understand is that the closures were designed as part of a government plan and not an overall solution. If not backed by a plan or ultimate objective, a shutdown would simply delay the inevitable, or move additional losses offshore until the U.S. markets were to reopen. Thus, even though a bank holiday would provoke terror among most investors, a globally coordinated stock market closure could also be viewed as a tremendous sign that central bankers and regulators finally understand the gravity of the situation we’re facing today and literally rewriting the rules of finance in a united, global front.

That’s why this reminds me of iconic investor Warren Buffett, who once reportedly quipped that investors shouldn’t buy anything they wouldn’t want to own for five years, if the markets were to close for that period.

Or something to that effect…

Source: How to be “Selectively Bullish” – Even in the Face of Financial Crisis