When President Obama took over the reins of government just six weeks ago, he stood at a historic crossroads. His decision on which route to take will make a profound impact on the future of the American economy and its currency. He could have persuaded a frightened Congress to initiate a structural change that would transform the U.S. economy from its dependence on debt-fueled personal consumption back to a path of productive growth. Instead, he took the easy route: attempting to delay the pain with stimulus and inflation, rewarding his benefactors without truly addressing our structural deficits. Disappointing for a man who campaigned on 'hope' and 'change.'

Obama could have remained true to his electoral promises to halt taxpayer abuse and to focus spending on infrastructure. This would have created some 35,000 new, wealth-creating jobs for each $1 billion spent. It also would have left the private sector to deleverage, allowing the desperately needed economic restructuring to take place in a productive, free-market manner. Instead, he bowed to a socialist Congress by boosting entitlements, the very programs which, over the past four decades, have depleted America's wealth and encumbered future generations with some $60,000,000,000,000 of debt.

Rather than 'hope' and 'change,' Obama has chosen to expand existing programs, casting a cloud over our children and grandchildren. His program is as old as Marx: ramp up government spending on and control over health and education to increase the federal government's share of GDP, in this case by two-thirds to some 34 percent. This will continue the serious erosion of American wealth, and with it the U.S. dollar.

In his budget last week, President Obama chose to raise taxes on individuals and businesses. In the face of a worldwide recession that is fast sliding into a depression and even towards an economic catastrophe, it was a surprising decision. It will likely serve only to deepen and prolong the economic decline. Despite the destructive tax hikes, the budget still forecast the largest deficit in world history.

For the foreseeable future, deficits will be measured in trillions, not billions. To put these vast sums into perspective, consider just one billion, or one thousandth of a trillion. A billion minutes ago, Jesus was alive. A billion hours ago, humankind was in the Stone Age. But in just the past eight hours and twenty minutes, even before Obama's budget clicks in, the Government has spent $1 billion!

Investors will understandably conclude that Obama's budget will put a near-mortal wound in the U.S. dollar and be tempted to sell or even short the greenback. Beware, as things are not that simple! While Obama's budget has halted healthy economic restructuring and placed the U.S. dollar under long-term threat, several important short-term factors will postpone the inevitable.

First, it is vitally important to realize that the present recession is not restricted to the United States. It is worldwide. Asset prices are dropping around the globe and cash is already a king. As fear spreads, investors are running for safety in the world's most widely held currency, the U.S. dollar. As a result, the dollar is rallying.

Second, the vast asset boom, from which the world is deleveraging, was based on a vast oversupply of cheap U.S. dollars. Investors borrowed low interest-cost dollars, converted them into their domestic currencies (driving down the dollar), and invested in local assets. Deleveraging is causing the dollar 'carry trade' to unwind, driving the dollar upwards.

Third, many investors, including major corporations and central banks, have diversified their currency holdings into the Euro. The world recession is hitting Europe extremely hard, particularly the large international exporters such as Germany, and the newly capitalist countries of the former Soviet Union. The plight of Eastern Europe has widened political cracks within the European Union to the point where there is now a serious risk that the euro and even the European Union could fail. David Charter of The Times writes, "...The lack of EU leadership and direction...threatens to wrench apart both the euro and the EU itself."

If the Euro appears under serious threat, there could be a massive financial panic and a stampede into U.S. dollars, driving it to unexpected highs. This is likely to add temporarily to a recessionary fall in the dollar price of gold. In light of this unfolding evidence, it is becoming increasingly risky to sell short the U.S. dollar. In the long-term however, President Obama appears to have set the seal on a dollar collapse.

Trying to time this changeover from dollar strength to depletion will be extremely difficult in these confusing times.

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