A report came out today from an analyst at Cazenove Capital that said the pound could reach parity with the dollar. Ouch… If this happens, the British might flood to Iceland for stability. Seriously, though – the report stated that the pound was likely to fall to between $1.20 and $1.25 USD which, in itself will cause severe pain in the UK. It is too bad the American Economy is doing so bad as well, or the US citizens would be flooding to England for vacation.

What brought the UK to this point is the same thing that can possibly bring the US down as well – government intervention in the dealings of private business. It has been a theme of mine here underline the need for companies to fail, it is the way of the free market world and any intervention can and will have dire effects. Capitalism does not always mean that people win, in fact, capitalism is based on the idea that you need to have losers in order to build growth. We are not all equal, and we should not be. Perhaps President Obama can learn a lesson from what is happening in England before he agrees to the US Congressional proposal for a new stimulus package – one that is filled with so much pork in it you have to wonder who is being stimulated.

I read an article not too long ago on RealClearMarkets.com by a man named John Tamny who has now become my new hero – in the article on government intervention into the banking sector, he said what I have been saying for a long time , that failure is the fertile ground for success. This is a fundamental principle of capitalism and needs to not be forgotten. When a company fails, another company takes its place – or another company is strengthened – it’s a cycle that needs to keep on moving and intervention through nationalization will only grind it to a halt as bureaucracy causes things to move at a slower pace than normal.

An interesting note to the Cazenove report, when it came out, the Pound was trading against the dollar toward its session lows of $1.393 – it bounced up and hit a session high of 1.4204 not too long after that and is currently trading at 1.4137. Sometimes we (both ordinary people and Forex people) need a little bit of bad news to motivate us towards a gain, I am sure this rally in the pound is short lived as it has more to do with the traders realizing that the US housing report which was stronger than everyone expected yesterday, was so because real estate is dirt cheap in America now.

One of fastest growing segments of the US economy now is foreclosure auctions – banks are so desperate to get the bad debt off their hands, they are fire-selling everything that has a minus sign next to it regardless of whether or not it is a smart idea. There was a report last night about a man in California who has purchased seven houses for less than a million dollars – a year ago that would have been unheard of – three years ago you could not even afford to buy one of them for a million. The US in trouble, they need to learn to not make the mistakes that Roosevelt made by pumping money into a system that needs failure in order to succeed. And more important, they need to understand that the US economy has been in an expansion since President Reagan methodically took the US out of recession 25 years ago – a living thing needs to breath, expand and contract – they need to allow the contraction.

As I write this 75,000 jobs have been wiped by Caterpillar, Home Depot, Sprint/Nextel and literally this second, Dow-Corning which added another 3500. The US unemployment rate for May hit 9.4% and based on these figures, it is getting worse. With more people losing their jobs, there is a good chance they will stop spending in stores as they save their cash to make their bare necessities. It would serve the US well to take the 850 Billion dollars and give it to its citizens so that they can spend, so that money floats back into the system. Stop handing money to corporations and stop the appropriation of funds into pet political projects that will only serve to help the politicians raise more money come election time. If you are going to spend it, give it to the people that not only need it, but the people who will be paying for it for years to come – the citizens.

The US Dollar fell against the Euro and Sterling yesterday as Forex traders and investors gained confidence which translated into an increased risk appetite as the US government moved to shore up the economy. Yesterday, the Bank of Japan left interest rates at near zero announcing that they will use all tools at their disposal to continue fighting the economic downturn – with near zero interest rates they have no tools left. The US Federal Reserve declared yesterday that the economy has indeed worsened and it could get worse still, although the bright spot is it will do so at a slower pace – that’s refreshing to all of us, not.

In what was seen by the Forex trading community as a signal of strength in action, the Fed said that they will continue to fight the economic woes at the source by supporting the functions of the financial industry by purchasing large quantities of mortgage backed securities, CDO’s and agency debt. This specific announcement pleased those trading and investing in the Forex markets that fled the perceived safety net of the greenback for some risk and potentially greater reward. At least this is what the Fed wants you to believe. Oddly enough they made no mention if the Russian, Brazilian, Indian and China – AKA BRIC – declaration that the Dollar be replaced as a safe haven

There is a big concern in the Forex market that the US government’s moves to “stimulate” their economy will have a negative impact on the greenback. By pumping close to a Trillion dollars of money into the economy, the Fed is in effect raising its fiscal deficit to over two trillion dollars which will make it necessary for the US to increase borrowing and the printing of money which will dilute the value of the currency. While investors see the US as a safe-haven, a passage of the proposed stimulus package, the second one in four months, might turn investors away from the currency and weaken the perceived strength of the USD in world markets.

In another alarming sign that things are getting worse before they get better, the International Monetary fund announced yesterday that they will run out of money if they had to address all the claims coming in for its help. This is the same IMF that Russia and China are interested in buying bonds from in order to dilute their Dollar holdings. The IMF cut its global growth forecast to .5% revised down from 2.2%. With so many countries in financial trouble and the main body responsible for helping economically challenged countries also experiencing difficulties – the outlook is bleak for the near future.

Today is my birthday so I will spend it criticizing the US President as it makes me feel better.

Last week saw the US dollar slump towards the end of the week as fears over the continued spending and “allocations” took traders and investors away from the greenback. It is in my opinion that the US needs to rethink their entire fiscal policy at this point. IT is ignorant to believe that they can just print their way out of the economic mess without affecting the global economy in the long run. Not only that, they are also adopting socialist policies such as the appointment of “Czars” who answer to the president only and have control over things such as executive pay, the car industry, social action groups and the like. This will damage the “free market” approach once the economy gets back on track and will stifle growth.

The US holds special status as a maker and breaker of economies around the world. Brokers trading the Forex know that the US is relied upon for trade and assistance my countless countries, developing and developed. And yet, their spending bill and policy of tight control has put enormous pressure on their own economy, and this is certain to have a trickledown effect to many of economies of the world.

In 1930, President Herbert Hoover, in an effort to stave off the coming depression, launched a series of laws that made things worse. By over-spending, and insisting on US made products only – he excluded the world economies from his plans. This snub at the world ended up causing the “great depression” as trade was now limited and “what you had, was what you would get” as they said. Today, 2009, sees the US making the same mistakes they made back then. The world’s economy is one. We are a global entity – and we are mutually reliant upon one another. For the US to have protectionist clauses in an enormous bill that even their own oversight committees believe will not have enough of an impact to help their economy in the long-run is short-sighted.

Forex brokers, traders and the investing community will not be kind to the dollar if this continues– as it is US public opinion on Obama is changing – actually, they like the man, hate his policies, but it is only a matter of time before they rebel towards their President who promised the people change and is delivering, just not the kind that Americans wanted. A promise of change seems to be translating itself into a repeat of the past. And the world cannot afford that at this time.