Is it even possible that a dollar collapse could be the end result of monetary policies set forth by the federal government and the United States central bank? Could that be even remotely possible? (At the end of this page is a great video to help you understand what you read here and to know what to do about it.)
The dollar has been the world's reserve currency since 1971 when Richard Nixon took America off the gold standard. For decades foreign countries have purchased dollar denominated assets such as U.S. Treasury bonds because of their belief in the safety of such an investment.
But the dollar declined about 40% between 2002 and 2008, very much due to the large amount of U.S. debt being carried by foreign countries. It gained back a little during the recession, but has since begun to sink again. That $17 trillion deficit is a big part of the renewed decline.
Bloomberg reported on content from a meeting of the Treasury Borrowing Advisory Committee back in August of 2011. Perhaps an early warning sign? Page 35 of that report included...
"The idea of a reserve currency is that it is built on strength, not typically that it is 'best among poor choices.' The fact that there are not currently any viable alternatives to the U.S. dollar is a hollow victory and perhaps a deteriorating fate."
So you know, the Treasury Borrowing Advisory Committee is a group of 15 members from large banks and investment funds that report to the Treasury Department.
So what could cause this dollar collapse? The short answer would be loss of confidence in the United States' ability or willingness to repay it's debts. Part of that fear would be our government's eager participation in the race to the bottom, that is currency debasing.
Note that most other countries are also joining in this battle to see who can lower the value of their own currency the fastest! Now why would any government seek to diminish the value of it's money?
Well one reason is that it would be easier to pay back massive debt owed to other countries. A weaker dollar means it won't cost our government as much. (It will cost us individually however! More on that below.)
Already the two largest debt holders, Japan and China are starting to slowly move away from dollar denominated assets. Maybe they sense a willingness from Washington to see the greenback sink much lower? Can they sense a dollar collapse?
Money Morning reported on comments from Kyle Bass who is the founder of Hayman Capitol Management....
"In a recent discussion with a senior Obama official, Bass disclosed that he asked how the U.S. would be able to grow exports if they don't allow nominal wage deflation. The official's answer: We're just going to kill the dollar."
If we get to the point where these two countries begin to dump Treasury notes, thereby flooding the market, demand for these notes would plummet. Which of course triggers the interest rate rocket. That lights the fuse under inflation.
Our exports would become very cheap. This could produce a short term boost which might provide good talking points during the next election, but this kind of boost is short lived. Rising interest rates and soaring inflation would wipe out that good news in very short order. Uncertainty and a deflated credit bubble would contract business and just add to the unemployment numbers. The real numbers. Not the published numbers.
For you and me, that means every dollar we have is worth less. You will have done nothing to deserve it, but they will have taken away some of your buying power as a result of this currency war. The political economy has already transformed into the beginnings of an international currency war. We lose, no matter who wins that war!
Is a dollar collapse really possible? Is there a chance that the Unites States dollar could lose it's status as the reserve currency of the world?
There is certainly a fundamental weakness in the dollar. And national debt continues to soar unabated. As reprehensible and irresponsible as it would be, such conditions would allow a nation to escape it's liabilities if their money was nearly worthless.
But there is another issue in play. In a similar sense it is an issue that our elected officials have failed to grasp for over fifty years. It is one thing to get rid of something, but quite another to replace it.
Our government has engineered or backed many regimes changes over the years. Most have backfired as the Washington anointed replacement proved to be equally bad or even worse than the predecessor. Think Vietnam in the early sixties, or more recently the tyrants of choice during the "Arab Spring."
For a total dollar collapse there would need to be a viable alternative. BRICS was suggested by some nations as that replacement. Bitcoin was another candidate. The Euro is probably the second strongest option, but it is saddled with massive issues. Greece gets the publicity, but the Euro's real problems will begin if and when Spain and Italy go down the path of the Greeks.
Peter Schiff is one of featured authors in our list of classic books. His financial literacy masterpiece, "How An Economy Grows And Why It Crashes" should be part of every high school curriculum. Regardless of age, if you haven't read this book, please do so.
I'm not sure if there will be a suitable replacement for the dollar as the reserve currency of the world. But I'm not hiding from the possibility. Here is a link to Peter Schiff's views on this topic. He is very sure.
I'm not sure about whether the U.S. dollar will collapse or not. I can see the possibility of it happening and I can clearly see the ramifications. So I am planning ahead. I watched a presentation from Ron Paul. From that video, I did order the new book from Porter Stansbury. I'll let you know about the content in a couple weeks.
Knowledge is the new money. It is imperative that we all increase our financial literacy. That is part of the mission statement at books-empower.com and part of it's reason for existing.
Click below to see the first installment of a vital educational tool. You will see excellent information on dollar collapse fallout and protection for your family. It will not cost you anything but the time used to watch a good sitcom. But it could save your retirement accounts and guide your children's financial future. I'd call that time well spent!
I've included the other installments in this series in the resource library located within the left margin of every page. And in the call out box below I've included links to some other pages related to the dollar status.
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