The big news story this morning is the intervention in the foreign exchange markets by the Group of Seven (G7) industrialized countries to push down the price of the Japanese yen…something smart currency traders were expecting.

The European Central Bank, Bank of England, Bank of France, Germany’s Bundesbank, and the central Bank of Italy started selling yen this morning. The Bank of Canada and the U.S. Fed are reported to be doing the same sometime today. This is the first time the G7 have intervened in the foreign exchange markets in a decade.

How convenient for the U.S.

Let’s face the facts here: the U.S. is awash in debt. Our politicians are not decreasing the amount the government spends; they are increasing our debt daily. The U.S. cannot manufacture goods at the cheap rate China can. We cannot compete against China.

So how does a country deal with a national debt crisis while trying to revitalize its economy at the same time? It devalues its currency.

Back in the early 2000s, I started writing about the government’s “secret plan” to devalue the greenback so that we are paying back our creditors with ever cheaper dollars. The U.S. has done a masterful job at “quietly” devaluing the U.S. dollar.

Corporate America loves a cheaper greenback, because their overseas profits translate into more American dollars. The more U.S. companies earn, the higher their stock prices go. Hence, the stock market loves a cheap greenback.

But there is a fine line. If the greenback goes too low, as I have written before, foreigners will be less receptive to buying the U.S. Treasuries we so desperately need to sell to finance our ever increasing debt. The situation can best be referred to as “too much of a good thing killing you.”

The chart below shows the uncharted territory we are about to enter with the U.S. dollar. In the next few weeks, the U.S. dollar will fall to a record low against other world currencies. Get ready for the fireworks—could get really interesting here—and the only way to protect yourself from it: make sure you own gold-related investments.

                                                   Chart courtesy of StockCharts.com

Michael’s Personal Notes:

The more time goes by, the more I’m convinced that inflation will be a huge problem for the U.S. over the next few years.

On Wednesday of this week, the U.S. Labor Department reported that the Producer Price Index (a measure of wholesale costs) jump 1.9% in February from the previous month—the highest level since June 2009.

The government tends to focus on inflation without food and energy costs (what they call “core inflation”). I do not take out food and energy costs when I look at the inflation rate, because: (1) eating is an everyday part of life (we all have to eat); and (2) driving is an everyday part of life—we all have to drive to/from work, take the kids here and there, etc.

As the National Inflation Association recently pointed out, the cost to print one U.S. dollar bill has increased 50% since 2008. Inflation is right under the government’s nose.

Years ago, people were saying that there was no relation between inflation and the price of gold. Back then, I said that was rubbish, and I still say that today. There is a direct link between inflation and gold bullion. And, as a leading indicator, gold is warning of serious inflationary times ahead.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this morning up 1.7% for 2011. The selling in the markets, at least temporarily, has subsided. The Dow Jones was up a big 161 points yesterday and this morning Dow Jones futures are up another 80 points. Hence, you can see why I kept my cool through the week and stuck fast to my belief that the bear market rally in stocks is not over.

As I wrote earlier this week, my view is that the markets overreacted to the crisis in Japan…and I was a buyer in the market this past Tuesday.

Bear market rally in stocks…born on March 9, 2009…and alive and well today.

What He Said:

“The U.S. reduced interest rates in 2004 to their lowest level in 46 years. And what did Americans do with their access to easy money? They borrowed and borrowed some more, investing the borrowed money into real estate. Looking ahead, perhaps the Fed’s actions (of reducing interest rates so low as to entice consumers to borrow more than they can afford) will one day be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years.” Michael Lombardi in PROFIT CONFIDENTIAL, July 21, 2005. Long before anyone was thinking of a banking crisis, Michael was warning that the coming real estate bust would create havoc with the banking system.