The Federal Reserve Bank is losing the ability to control the economy through interest rates. It may soon be up to politicians to help the Fed regain control. The Fed is losing the ability to heat or cool the economy through interest rates because of the staggering volume of our debt held by foreigners.

Foreigners own about $1.3 trillion of our Treasury debt. For the past two years, the interest paid to hold this debt has been about $40 billion, but because of the devaluing dollar, about $80 billion in principal has been lost. This situation could get worse. If those abroad start to lose too much principal, they will be forced to dump our debt on the open market.

Currently, China has buyers in the U.S. shopping for American companies to buy with the excess dollars they own. They will not be able to use up their massive dollar hoard for that purpose. At best they will spend no more than half trying to buy whatever suits their fancy.

The selling of these dollars, to an extent, is counter-productive. It causes the dollar to move lower as more and more dollars are put into the open market.

The Chinese are not the only ones that intend to use excess dollars to buy up U.S. companies, land, and vacation spots. Eurolands, Japan and others with dollars will join the buying mania. As they sell off dollars, the dollar's value will continue to drop lower.

To keep this "buying up of America" from ruining our currency and forcing the Fed to raise its key interest rates to double digits, the Fed is looking to the U.S. government for help. The Bush Administration will make the first attempt, but likely fail. It may be up to the Democrats if they are victorious in the 2008 election.

By that time, our economy may be in critical condition. The mainstream media seems to trust the Democrats more than the Republicans, so the Democrats may have a more viable chance at passing a bill to save the economy and our currency. What will this bill be? I talk about it in the March 2005 edition of Kenneth Coleman's Investment Tracker newsletter. I will continue to cover its progress in the April issue.

In the meantime, I recommend investment in gold and silver mining shares and energy stocks as a means of protecting yourself from a devaluing dollar. I like Pan American Silver (PAAS), Kinross Gold (KGC), Placer Dome (PDG), Agnico Eagle Mines (AEM), Energy Partners Ltd. (EPL), Panhandle Royalty Co. (PHX), and Carrizo Oil and Co. (CRZO).

Kenneth Coleman