First of all, we need to comprehend exactly what is to bring forth this new “arrangement.” What is wrong with the old one?

The dollar is on life support. The failing debt markets in the U.S. are the foundation of the dollar. The buck has seen no fundamental improvements that account for its most recent upward move. Consider it a bounce in a long-term bear market. The dollar index had not been under the 80 level since the mid-90s, not even when Nixon removed its gold backing in the early 1970s.

You may review my four part series from a year ago entitled “The Buck has a Stage 4 Malignancy” for my rationale regarding the dollar end game scenario. (Part 1, Part 2, Part 3, Part 4.)

For the purposes of this article we’re going to look at life after the dollar. Another series is likely under way.

One of the main things propping up the dollar currently is the fact that most other currencies are trash in their own right. The euro has its own problems. So does the British pound and the Canadian loonie. The one solid currency, gold, gets trashed on a semi-regular basis.

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You’re not supposed to opt out of the fiat system with such an alternative. Still, gold persists in grinding higher.

The Amero is deigned to be the currency used by the US, Canada and Mexico. I’m not the only one who sees the dollar demise. Our president is in on the fix. It’s hard to keep up with all the various schemes of the elitists who believe they know what is best. Best for who?

I travel to Canada and Mexico on a fairly regular basis. At the risk of generating scorn from our neighbors and allies… please permit a few generalizations. It seems the Canadian people have no desire of being assimilated into a larger regional currency system or country. Neither do the citizens of the US for that matter. Apparently the people of Mexico would love to link up with the US. There are somewhere near 12 million illegal immigrants in the US. Many are making their way back home because of the present economic malaise in the US.

Maybe some of our Mexican readers can correct me on these premises. Do Mexicans, as a whole, desire national sovereignty on a long term basis? Would you welcome a North American Union?

There is tremendous chaos in Mexico. Corruption and instability abound. The U.S. is also in an extreme economic crisis. Dramatic changes often come forth during times of crisis. Order comes out of chaos… New World Order. You will want to watch for it.

Let’s take a quick time out here. We had a lot of fun with the locals during my recent trip to Vancouver. We persisted on asking a cabbie, a concierge or a local where to go for the best Canadian food around. All were pretty dumbfounded at the request which was made in jest. What exactly is Canadian food? Doesn’t every country have peculiar culinary delights?

We heard about halibut, maple syrup, french fries with mayo and bacon. What else do Canadians specialize in? This is important, especially if we’ll soon be one big happy family. The food we enjoyed was primarily multi-ethnic and was superb.

Why would elitists want to combine these sovereign countries? It’s always about power and money. Canada is incredibly rich in natural resources. The US is rich in financial shenanigans and good old fashioned know how. Mexico has both resources and plentiful labor.

The sovereignty of all three countries is at risk. Treaties are made that make end runs around the U.S. Constitution (and others). Borders are left unprotected. Road maps to a currency union are drawn up.

A common currency is only an initial step. National sovereignty comes later. The twenty-seven nation European Union and its euro are the prototype. Bigger is supposedly better. Centralized power over as many citizens as possible is the goal.

Source: My Fellow Amero-cans

That didn’t happen. Instead, the Fed issued a fairly neutral statement. It said “downside risks to growth remain” – dropping a reference in June’s statement to “diminished” dangers – and price increases are of “significant concern.”

Chris Gaffney in The Daily Reckoning says the statement indicates the Fed realizes it will be forced to leave rates untouched. This leaves Mr. Market is to focus on the European Central Bank. Expect more inflation fighting from Jean-Claude Trichet and his pals…

The Eurozone has been posting some pretty poor numbers. Just this morning Germany reported that factory orders in the second quarter dropped for a seventh straight month in June. Manufacturing has slowed in Germany and Europe, as a stronger euro (EUR) has weighed on demand for exports. The continued slowdown in German industrial production increases the likelihood that the Eurozone is slipping into a recession.

But the ECB has never wavered from their mandate for price stability. This dogged fight against inflation will help maintain the long-term value of the euro. This latest dollar rally just doesn’t make sense when you look at the overall global economic picture. Yes, growth in the Eurozone is slowing, and Germany may be slipping awfully close to a recession, but the United States IS in a recession! And while the impotent FOMC sits back and ‘hopes’ that inflation will abate, the ECB has had the courage to continue its fight against inflation.

The past month has been hard on holders of foreign currencies, but investors have to look past this dollar correction. Only three major currencies have outperformed the euro since the beginning of 2008: the Brazilian real (BRL), Mexican peso (MXN), and Swiss franc (CHF). In the long run, I have to believe the inflation fighting of a strong ECB will help to maintain the euro’s value versus the U.S. dollar.

So today the markets’ focus will shift to the upcoming BOE and ECB interest rate meetings. ECB President Jean-Claude Trichet is expected to keep interest rates unchanged, but may signal that higher interest rates will be needed to combat inflation. Trichet will hold a press conference after the ECB announces its decision tomorrow, at 1:45 PM in Frankfurt. The currency markets will be listening to his every word, trying to uncover any indications of a change in his hawkish stance against inflation. Until then, the dollar will likely remain in a fairly narrow trading band versus the euro.

The Bank of England is also expected to keep rates unchanged, but the pound (GBP) will likely continue to come under pressure as many feel the BOE has been ineffective in its policy decisions. U.K. consumer confidence fell the most in at least four years, as England deals with a housing market slump that rivals our own. The markets have lost confidence in the Bank of England’s ability to deal with the current economic situation, and the pound continues to fall because of it.

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Source: Fed Not as Hawkish as Expected

So… The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW… German Investor Confidence as measured by the think tank, ZEW, fell to a record low this month on the surging inflation problems, and rising interest rates. So for now, the euro is back below 1.60, but hear me now and listen to me later… This ZEW will soon be in the rear view mirror, and the euro won’t have that albatross around its neck as it revisits its overnight high…

And don’t look now, but the Aussie dollar is up to 98-cents! WOW! I’ve said for about 8 months that I wouldn’t be surprised to see the A$ at parity to the green/peachback… It certainly has that parity look about it does it not? The last time the A$ was 98-cents was 1983… 25-years ago… 1/4 of a century, and all that!

The U.K. pound sterling is back to $2, which seems totally unlikely an event as possible, but it has happened, so, go on and crow if you thought I was wrong to say the pound was going to have problems once the Bank of England (BOE) started its rate cut cycle…

And the Canadian dollar / loonie has crept back to parity! It’s been a long, time coming… It’s going to be a long, time gone… (a little CSNY)…

And, the poor, downtrodden, Japanese yen, is at the bottom of the 105 handle, and looking like it wants to trade with a 104 next to it! I had to laugh at a story I saw flash across the screen… The title was… “Yen may gain as Bank of Japan (BOJ) is more likely to raise rates than the Fed”. Now that’s funny! Ok, stay with me on this… A month ago, the dollar was getting bought like Pet Rocks because Fed Chairman, Big Ben Bernanke hinted that he was going to be an inflation fighter, thus interest rates would go higher… But here we are a month later, there’s been no sign of Big Ben the inflation fighter, and now it’s deemed that the BOJ could raise rates before the Fed!

And the dollar bulls wonder why their currency is getting sold like funnel cakes at a state fair? Why don’t the dollar bulls give Big Ben a call on the telly, and see if he can’t help them out? Oh… That’s right, Big Ben doesn’t take calls from just anyone… According to our friend, Jim Rogers, on his Bloomberg TV interview yesterday morning… “Ben Bernanke and Paulson only take calls from their Wall Street Buddies”… HA!

Speaking of Jim Rogers… He was full of you know what and vinegar yesterday morning… He didn’t pull any punches and said what was on his mind… You should have seen me here at the trading desk, Jim Rogers would say something, and I would clap and hoot and holler! At one point, Rogers said that the Gov’t’s plan to rescue Freddie and Fannie was “an unmitigated disaster”…

So… Remember early in the year when I kept telling you that there would be another “risk event” this year, and then we had the Bear Stearns meltdown, but that wasn’t it for the “risk events” , and I kept harping that there would be more? Well… It’s not like I was wishing, and hoping and thinkin’ and praying for these things to happen… I was simply pointing out that the world today has too many “risk events” all over, and with the credit woes in the U.S. and the housing and mortgage meltdowns, I just figure it would touch here a few times.

Anyway… What I’m trying to get at here is simply that these are the things I kept telling people to protect themselves from by diversifying into currencies and precious metals… I also, recall, the wink, wink, I gave you when Gold was trading below $900 about a month ago… Today, Gold is $983!

OK, enough with all the “I told you so” talk! Let’s talk about today… Well, today has “risk” written all over it! Big Ben goes to the “hill” to talk to lawmakers about the economy and Fed direction… You have to think that before the Meltdown last week of Freddie and Fannie (see more talk about them, I just can’t leave them on the side of the road!), that Big Ben would go to the “hill” and talk the inflation fighter talk… But now… Not now… Not with the financial sector in meltdown mode… So this is a double-edged sword… If he doesn’t go and sound hawkish, then the markets will take that as no rate hike is coming and take the dollar to the woodshed again… (you would think by now that the dollar would have gotten used to these beatings!)

Besides Big Ben, we get a ton-o-data today… PPI for June… Retail Sales for June… And Business Inventories for May… Retail Sales is the Big Kahuna of data today… And I would think that given the tax rebate checks that were still being mailed in June, Retail Sales would remain somewhat robust… Wait till July’s number, I saw all the shopping bags from my beautiful bride’s trip to Chicago this morning! But that’s for next month! For now, PPI poses a treat to future Consumer inflation, so this one plays big too…

If any of this stuff comes in worse than expected, we could see the dollar not only get taken to the woodshed, but told to go pick the switch that it will get beaten with.

Source: Credit Woes Sink The Dollar!

The Canadian dollar / loonie, has outperformed all currencies overnight, which is about time! The bounce in Oil prices overnight has boosted the loonie higher… But in reality it’s a small trading range, so don’t get all lathered up just yet!

The Aussie dollar received some not so good economic data last night… Consumer Confidence plunged to a 16 1/2 year low in July, as rising food and fuel prices are hurting the Aussies as well. The data in Australia, which previously, kept pointing to another rate hike by the Reserve Bank of Australia (RBA), has softened in recent prints, and now suggests that the RBA is finished with rate hikes in this cycle… That will cause some softness in the A$, but only while those that were looking for a “quick hit” get out and move to something else… I still believe in the Aussie $ story, and view this as a temporary situation.

The Indian rupee continues to get sold… And this is beginning to get old! I was telling someone yesterday that the flows into India have slowed somewhat, and you had the Reserve Bank selling rupees a couple of months ago to keep it from getting too strong… When you have a Central Bank that demonstrates a willingness to sell their currency, traders and investors can choose to fight them, or go along with the selling… Unfortunately, it looks like the latter of the two choices has been the winner, thus a weaker rupee…

The New Zealand dollar / kiwi has had a difficult time dealing with the fact that the Reserve Bank of New Zealand (RBNZ) has basically called an end to their rate hike cycle… I’ve said this many times in the past, but for new readers it could be a first, so I’ll say it again… Kiwi has had a wonderful, exciting, and most profitable run for the last 6 years, but as the currency was being bought because of the high interest rates that could be had there, the country’s Trade Deficit was rising… The Trade Deficit has run well over 7% of GDP for a couple of years now, but as long as interest rates were high, the kiwi benefited… But now, if interest rates aren’t going higher any more, or maybe even lowered, the Trade Deficit comes front and center, and is no longer swept under the rug… Be careful here…

Source:  Fighting Deflation Instead of Inflation?

OK… The Fed’s FOMC meeting minutes caused quite a stir in the currencies yesterday, so let’s go to the tape. The Fed noted that prior easing had provided a better balance to the risks to inflation and growth, although the risks were still towards downside growth. In addition, the Fed downgraded their outlook for growth and pointed toward higher inflation… In addition, the Fed noted that “much weaker 2008 growth, inflation to remain elevated in 2008, jobless rate to rise significantly.” Ooooh, now that doesn’t give me a warm and fuzzy, and it shouldn’t give you one either!

So… If that’s what they “really” talked about, then why on earth did they go ahead and cut interest rates? They put in print that they believe inflation is going higher, and they went ahead and cut interest rates! OMG! These guys (and gals) are something… They are really something.. What? I don’t believe I can say what they are in this letter, as this is a family letter! But, I’m sure my friend, the Mogambo Guru will have something to say about this, in his special Mogambo way… Can’t wait to read his letter next Monday!

The Fed notes sent a message to currency traders and the message said… “with low growth forecast, and higher inflation forecast, the Fed doesn’t have a clue what to do” Which means there isn’t a strong feeling about an interest rate hike now either.

Last night, after getting home from my little buddy Alex’s baseball game, I checked what was going on in the Asian markets… I did this because the Fed FOMC minutes printed after Asia and London had gone home for the day, and I wanted to see how the Asians took the FOMC minutes… At that time the euro was close to 1.58 again…

But something funny happened on the way to the forum for the euro this morning… So, let me explain what happened… It’s called jawboning. The dollar was falling too far too fast again, and something had to be done to slow down the fall, a governor if you will on weakness! And that something came in the form of a report showing that futures traders are adding to bets that the Fed will raise interest rates before year-end…

Well… With inflation (in my terms) at 11%, I would think they would be raising interest rates well before then… But, then, that’s just me… And if the Fed does raise rates, what good will it do if they wait till year-end? By then, inflation will probably be around 14-15% (in my terms) and the price of oil will be… Oh, who knows how high it will be by year-end?

So… The euro has lost about 1/2 cent overnight on this news… Still, the euro has made a nice recovery this week, and all those banging on the drum for and end to the weak dollar trend have crawled into the back seat and shut their traps this week…

OK… Enough on the Fed and their ineptness! Under the category of: “It’s about time they agree with Chuck”… Banks including Royal Bank of Canada, and ABN AMRO Holding NV. Believe that the Aussie dollar is going to parity with the green/peachback. So, the “parity watch” is on… With champagne bottles chilling and party hats all ready to be worn… The “parity party” is being planned… Too bad these Big Banks with their Big Research Departments don’t read the Pfennig…

Just kidding… These guys are great at what they do! But, how about that Aussie dollar? I’ve spent most of this week talking glowingly about the Aussie dollar… Yesterday, it hit a 25-year high!

The New Zealand dollar / kiwi, finally got off its duff and moved higher last night… Kiwi had lagged the Aussie dollar lately, but finally saw some love when a more expansionary than expected budget for 2008 was printed… I still like Aussie more than kiwi, as New Zealand’s debt situation is just too much for me to try to sweep under the rug!

U.S. stocks lost another 200 points yesterday… And we all know what that means… So a quick look at Japanese yen and Swiss francs shows some nice gains this week. This all plays well with what I’ve been talking about… (stocks to fall, and Carry Trades unwind) It’s too early to tell if this will continue, but for now, it sure looks like another “plan” has come together!

A couple of weeks ago I talked about the Indian rupee, and how it had weakened for no apparent reason, therefore laying the blame on the Indian Central Bank… It now appears that a credit market slump has led to this weakness… Corporate Treasurers in India believe this credit market slump has passed and the currency will rebound 8% in the next year.

Yesterday, Reuters reported that Warren Buffett has this to say about the dollar… “BUFFETT SAYS DOLLAR WILL CONTINUE TO DEVALUE, POLICIES NEEDED TO CORRECT SLIDE HAVE NOT CHANGED”

Sounds like Warren Buffett has been reading the Pfennig! Doesn’t that all sound familiar? Of course it does… Because that’s what I keep saying over and over again! The fundamentals remain awful!

OK… Today, we’ll see the Weekly Initial Jobless Claims, which are forecast to have jumped to 373K, which would be equal to the level at the start of the 2001 recession… We’ll also see the OFHEO House Price Index for the 1st Qtr, which is expected to show a 1.3% decline, which if that number prints it would equal a record low since the data began in 1975… UGH!

Fed Head Kroszner is going to talk today about the recovery and “repair” of the mortgage markets… What recovery? What repair? This ought to be interesting!

Bank of Canada’s Gov. Carney will speak today, but after Canada prints March Retail Sales, which are forecast to show a rebound from the Feb. report. The Canadian loonie continues to move higher VS the green/peachback, so expect some “jawboning” from Carney to slow the loonie’s rise…

Meanwhile, a sharp sell off in commodities sent the Canadian dollar tumbling. The greenback climbed to 1.0102 Canadian dollars, up from 99.21 Canadian cents the previous day.

Yesterday in the equity markets miners, oil companies and metals producers were sent lower by a sell off metals and oil prices slumped. Oil dipped below the $100 mark and gold was plunged to $914.10 a troy ounce.

According to the Financial Times:

Traders said funds were deleveraging their positions, reducing risk exposures and moving into the safety of cash before the Easter break.

“It seems as if large-scale deleveraging and profit taking is occurring across many asset classes and commodities. Profitable and recently fashionable trades, are being caught up in this trend,” said John Reade of UBS.

“The Fed’s latest rate cuts is still good news for gold,” says Dominic Frisby in The Daily Reckoning UK.

“The move is inflationary. In its policy of ‘socialism for the rich’, the Fed is trying to bail out the banks and the stock markets. They just made money easier, when it is easy money that is at the root of all this mess. They are attempting to solve the problem with the very cause of the problem.

The intended consequence of this move is to increase the amount of dollars in circulation in order to ease the globally liquidity crisis. But the inevitable consequence of more of anything in circulation is a decrease in its exclusivity, its premium, its value, its purchasing power. The Fed have just made the long-term problems for the dollar – and by extension all paper currencies – even worse. Meanwhile, they have not increased the amount of gold in circulation. What they have done is bullish for gold, so sit tight.”