Late last year, the sporting world was shocked at how Tiger Woods, the world’s FIRST SPORTING BILLIONAIRE, fell from grace through his string of sordid sexual affairs.

He seemed to have it all – money, fame, a supermodel wife and 2 beautiful children. How could a “squeaky-clean” celebrity throw all that away?

While this article has got nothing to do with Tiger Woods, I want to draw a parallel with the US financial system.

Tiger Woods sent SHOCKWAVES through the sporting world. In the same fashion, I feel the US needs to send SHOCKWAVES through the financial world to send a message that they are “serious in supporting a strong dollar.”

As it is, The United States public debt is in excess of $12 trillion and continues to grow at a rate of about $3.83 billion each day.

So here’s 5 points on how they can do just that:

T    =    Treasuries
I     =    Income
G    =    Gold
E    =    Exports
R    =    Rates

Treasuries

As the largest consumer in the world with a GDP of $14 trillion, the US has started to rely on external help to fund their appetite. This has caused the Treasury to issue an unprecedented amount of debt.

Over the course of the 2008-2009 financial crisis, many doubts arose over the real value of U.S. treasury securities. Though carefully worded, Chinese premier Wen Jia Bao’s warning about possible devaluation of Chinese held U.S. bonds was taken very seriously by Washington:

“Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried” … “I would like to call on the United States to honour its words, stay a credible nation and ensure the safety of Chinese assets.”

Chinese premier Wen Jiabao, said at a news conference after the closing of China’s 2009 legislative session.
In its biggest voice yet, China’s investment in U.S. government securities dropped by $34.2 billion in December 2009 to $755.4 billion. The decline is the MOST in a decade. Japan’s holdings on the other hand, rose 1.5 percent to $768.8 billion, making it America’s largest creditor. What is interesting to note also, is that December marked the second STRAIGHT month that China became a net SELLER of U.S. debt.

A positive sign of dollar strength would be for the US to slow-down its issuance of Treasuries on a global scale.

Income

Income here would mean for both groups: the government and the people. Let’s talk about income for the government first – taxes. With a soaring budget deficit in excess of 1 TRILLION US dollars, the US governenment has GOT TO START thinking about either raising current tax rates or introducing new ones; like the VAT (value-added tax) for instance.

Currently, the US is the ONLY country among the 30 OECD nations without a VAT-type tax. Its much smaller sales tax (which accounts for less than 8% of total taxes) is quite different from VAT in several ways; in particular, it is only charged on some goods at the point of sale and cannot be claimed back by business purchasers.

Check this out:
In the US, the annual budget deficit is the difference between actual cash collections and outlays during a given fiscal year, which runs from October 1 to September 30. The U.S. Federal Government collected $2.52 trillion in FY2008, while spending $2.98 trillion, generating a total deficit of $455 billion, which was added to the United States public debt. Since 1970, the U.S. Federal Government has run deficits for all but four years (1998-2001), contributing to a total debt of $10.6 trillion as of January 2009.

The national debt represents the outstanding obligations of the government at any given time, comprising both public and intra-governmental debt, which was $12.3 trillion as of January 18, 2010 (and growing!).

No tax you say?
In terms of income for the people, the government has got to deal with the disturbingly high unemployment rate of about 10%. Since the recession started in Dec 2007, the US has shed a mind-boggling 8.4 million jobs. This is definitely one of the indicators that investors and traders alike watch for signs of an improving economy. In 2009, consumer spending made up 71% percent of GDP. Jobs = cash = consumer spending.

Gold

It is interesting to note that the US has got the biggest stockpile of gold in the whole world – about 9,000 tons of the shiny metal. This is 3 TIMES MORE than what the International Monetary Fund (IMF) has and a stunning 70 TIMES what Singapore currently holds! At today’s price of US$1,1350/oz., one ton of gold has a value of approximately USD36.3 million.

Just selling one-third of their gold would give the government over 100 BILLION US dollars.

Exports

Today, exports account for only 7% of total GDP in the US. President Obama has talked about “doubling exports” in 5 years which could also potentially add 2 million jobs to the economy. This would bring exports to 2 trillion in 2015, from the current 1 trillion as of today.

Now let’s consider this for a minute: the US has held a trade deficit starting late in the 1960s. It was this very deficit that forced the United States in 1971 off the gold standard. The US last had a trade surplus in 1975.

So while Obama has set some lofty goals, ensuring a trade surplus would be the way to go first. Check out the graph:

Rates

So much has been said on when the US will be raising rates. The federal funds rate to be exact. In Feb 2009, the Fed decided to boost the rate banks pay for emergency loans to 0.75%; also known as the discount rate. The action was part of a broader move to pull back the extraordinary aid it provided to fight the financial crisis. The action won’t directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed’s main crisis lending program closer to normal.

Is this a sign of them raising the Federal Funds rate? I don’t think so. They say that the Fed funds rate would be “low for an extended period of time.” Granted, raising the rates too soon would cripple the economic recovery. Raising it too late would bring on the problems of inflation.

However, if they are TRULY SERIOUS in “supporting a strong dollar,” raising the rate a quarter of a percentage point would be the way to go. This would not only send a strong signal to the financial markets, it would also cause traders to “think twice” in using the US dollar to fund higher-yielding currencies in the “carry trade.”

So there you have it! 5 “TIGER” points to help Bernanke and Geithner “support” a strong dollar. Anything less and the markets would treat the dollar like a CUB!