Amid sharply lower tax revenues, two military campaigns and a struggling economy, the United States Treasury announced it will quadruple its borrowing requirements for the quarter ending September 30.

Longer term, the country’s funding needs will require substantially higher interest rates. The borrowing binge is now heading for the record books and by all accounts is running out of control. The United States must raise about $2.5 billion dollars daily to fund its budget gap.

The United States Treasury estimates it will need to borrow $171 billion dollars for the third quarter – the second highest funding requirement on record. The highest borrowing binge occurred in the January to March period this year when Treasury raised $244 billion dollars.

The deficit for this fiscal year, which ends September 30, is projected to hit $389 billion dollars, up 140% from $161.5 billion dollars the previous fiscal year. The United States has not logged a budget surplus since 2000.

Is it any wonder why gold is in a secular bull market this decade?

The frightening level of borrowing will ultimately spark a lenders’ strike one day. The government will be forced to expand credit at an enormous rate and invite even higher inflation over the next several years. It’s unavoidable, unless outright deflation suffocates the entire economy first.

At this rate, the United States will have to borrow at least $4 to $5 billion dollars per day to finance its budget shortfall in 2009. Though the dollar is heavily oversold and will rally at some point versus most currencies, the longer term picture is outright bearish. The upcoming dollar rally, unlike the one that occurred in the 1990s, won’t be secular. The 1995 to 2001 U.S. dollar bull market was predicated on a series of budget surpluses under Clinton-Rubin, a massive productivity revolution and no major military conflicts.

Investors should use any intermittent dollar strength as an opportunity to buy gold.

Sovereign Wealth Funds, or SWFs, which have been duped into buying Treasury bonds to recycle their bulging U.S. dollar trade surpluses, have already started to pare their holdings, if only gradually.

China and other SWFs are not ready for an all-out economic war against the United States; trade flows are still too significant with America. But I imagine that as inter-regional trade continues to grow in Asia, including the expansion of domestic markets, these countries will reduce the amount of dollars held in their coffers in exchange for other currencies, commodities, stocks and gold.

The dollar is indeed dirt cheap in 2008 versus all major foreign currencies. But it’s very hard to make a long-term case for the dollar under the enormous weight of such deficits, which now appear to be totally out of control. If the government doesn’t care about deficits and the spectacular decline of the dollar over the last 37 years, then why should investors hold fiat paper?

Increasingly, as the dollar rebounds, investors should boost their holdings of gold and other currencies with stronger economic fundamentals. That’s my plan for investors over the next 12-24 months as I reduce dollar-based securities. But I’d be wary of dumping dollars now for most currencies, except in Asia.

Have a good weekend. See you on Monday.