Any trader will tell you the trend is your friend and the overwhelming direction for the US dollar for the last 220 years has been down.

Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten-dollar bill out of your wallet and you?re looking at a world class horndog, a swordsman of the first order. When he wasn?t fighting scandalous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.

Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts. Hamilton settled many of these by giving creditors notes exchangeable for then worthless Indian land west of the Appalachians. As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a centuries long government tradition of stiffing its lenders, a practice that continues to this day. My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California?and am part Indian.

It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr?s intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord. Cheney, eat your heart out.

Since Bloomberg machines weren?t around in 1790, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold. A chart of this data shows an undeniable permanent downtrend, which greatly accelerates after 1933 when FDR banned private ownership of gold and devalued the dollar.

Today, going short the currency of the world?s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long term growth rate is a no brainer. But once it became every hedge fund trader?s free lunch and positions became so lopsided against the buck, a reversal was inevitable. We seem to be solidly in one of those periodic corrections, which began six month ago, and could continue for months or years.

The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations. I?m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback. Think of these as emerging markets where they speak English, best played through the local currencies.

For a sleeper, buy the Chinese Yuan ETF (CYB) for your back book. A major revaluation by the Middle Kingdom is just a matter of time.

I?m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary, Tim Geithner, to talk the dollar up, but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation. Given Geithner?s performance so far, I?d say he studied his history well. Hamilton must be smiling from the grave.

My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations (click here for the link).

Although initially launched as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success. The index counts the cost of McDonald?s (MCD) fat and sodium packed premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.

What are its conclusions today? The Swiss Franc, the Brazilian Real and the Euro are overvalued, while the Hong Kong Dollar, the Chinese Yuan and the Thai Baht are cheap. I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas. I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.

The Big Mac in Yen is Definitely Not a Buy

I received some questions last week on my recent solar pieces as to whether I minded paying more money for ?green? power. My answer is ?hell no,? and I?ll tell you why. My annual electric bill comes to $1,500 a year. Since the California power authorities have set a goal of 33% alternative energy sources by 2020, PG&E (PGE) has the most aggressive green energy program in the country (click here?for ?The Solar Boom in California?). More expensive solar, wind, geothermal, and biodiesel power sources mean that my electric bill may rise by $150-$300 a year.

Now let?s combine my electricity and gasoline bills. Driving 15,000 miles a year, my current gasoline engine-powered car uses 750 gallons a year, which at $4/gallon for gas costs me $3,000/year. So my annual power/gasoline bill is $4,500. My new all electric Nissan Leaf (NSANY) will cost me $180/year to cover the same distance (click here for ?Getting Something for Nothing?). Even if my power bill goes up 20%, as it eventually will, thanks to the Leaf, my THE total plunges to $1,980, down 56%.

There is an additional sweetener, which I?m not even counting. I also spend $1,000/year on maintenance on my old car, including tune-ups and oil changes. The Nissan Leaf will cost me nothing, as there are no oil changes or tune-ups, and my engine drops from using 400 overcooked parts to just five. We?re basically talking tire rotations only for the first 100,000 miles.

There is a further enormous pay-off down the road. We are currently spending $100 billion a year in cash up-front fighting our wars in the Middle East, or $273 million a day! Add to that another $200 billion in back-end costs, including wear-and-tear on capital equipment, and lifetime medical care for 3 million veterans, some of whom are severely torn up.

We import 9.1 million barrels of oil each day, or 3.3 billion barrels a year, worth $270 billion at $82/barrel. Some 2 million b/d, or 730 million barrels/year worth $60 billion comes from the Middle East. That means we are paying a de facto tax which amounts to $136/barrel, taking the true price for Saudi crude up to a staggering $219/barrel!

We are literally spending $100 billion extra to buy $60 billion worth of oil, and that?s not counting the lives lost. Even worse, all of the new growth in Middle Eastern oil exports is to China, so we are now spending this money to assure their supplies more than ours. Only a government could come up with such an idiotic plan.

There is another factor to count in. Anyone in the oil industry will tell you that, of the current $82 price for crude, $30 is a risk premium driven by fears of instability in the Middle East. The Strategic Petroleum Reserve, every available tanker, and thousands of rail cars are all chocked full with unwanted oil. This is why prices remain high.

The International Energy Agency says the world is now using 87 million b/d, or 32 billion barrels a year worth $2.6 trillion. This means that the risk premium is costing global consumers $950 billion/year. If we abandon that oil source, the risk premium should fall substantially, or disappear completely. What instability there becomes China?s headache, not ours.

If enough of the country converts to alternatives and adopts major conservation measures, then we can quit importing oil from that violent part of the world.? No more sending our President to bow and shake hands with King Abdullah. Oil prices would fall, our military budget would drop, the federal budget deficit would shrink, and our taxes would likely get cut.

One Leaf shrinks demand for 750 gallons of gasoline, or 1,500 gallons of oil per year. That means that we need?20.4 million?Leafs on the road to eliminate the need for the 2 million barrels/day we are importing from the Middle East. The Department of Energy has provided a $1.6 billion loan to build a Nissan plant in Smyrna, Tennessee that will pump out 250,000 Leafs a year by end 2012. Add that to the?million Volts, Tesla S-1?s, Mitsubishi iMiEV?s, and other electric cars ?hitting the market in the next few years. Also taking a bite out of our oil consumption are the 1 million hybrids now on the road to be joined by a second million in the next two years. That goal is not so far off.

Yes, these are simplistic, back-of-the-envelop calculations that don?t take into account other national security considerations, or our presence on the global stage. But these numbers show that even a modest conversion to alternatives can have an outsized impact on the bigger picture.

By the way, please don?t tell ExxonMobile (XOM) or BP (BP) I told you this. They get 80% of their earnings from importing oil to the US. I don?t want to get a knock on the door in the middle of the night.