Is US Dollar Going To Collapse?
You go to the coffee shop and a single cup of coffee may cost you a $1000 or 1 ounce of gold? Yes I am talking about the consequences of the Collapse of the Dollar. Will the current monetary system change? Will the euro take the place of the Dollar? Will the “Night of the Living Fed’s” quantitative easing provoke a global currency war? Will it lead to the collapse of the dollar? The collapse of the dollar will throw the world into a global depression. Can the Federal Reserve cannot do anything to prevent the collapse of its own currency? These are the burning topics discussed by the media these days. Let’s have a look at this issue.
When we are talking about the collapse of a currency there are criteria that need to be fulfilled. The first one is the sustainability of the economy holding the base currency which is USA. Whether the economy of the USA is going to survive or collapse. Secondly is there a viable alternative that can replace the Dollar.
It was an August in which headlines read:
U.S. Trade Deficit Unexpectedly Widens to $49.9 Billion as Exports Decline.
Mortgage Arrears Deepen U.S. Fears
Factories Lose Orders, Builders Lose Confidence
Housing Starts in U.S. Increased Less than Economists Forecast Last Month
July Home Prices Dropped 3.3% as Foreclosed Properties Flooded Market
Construction Spending Sinks to 10-Year Low in July as Investments in Projects are Now 34 %t Below February 2006 Peak
U.S. New-Home Sales Flat in August, Matching the Second-Lowest Level on Record
Existing-Home Sales in July Down 25.5% from Previous Year
Second Quarter GDP Growth Revised Down from 2.4% to 1.6%
Unemployment Claims in U.S. Unexpectedly Climb to Highest in Five Months
Auto Sales: Worst August Since 1983
The headlines told the real story, but that’s not the way it was being told by political prostitutes, Wall Street shills and media barkers.
What else is going on in the U.S. economy, the dollar has declined 40% against the Euro over the last 2 years, and during this time America’s trade deficit has continued to deteriorate. The Fed is printing money to meet its debt obligations, but the money is not reaching the common people. This increases the inflation rate not only in US economy but also other economies. The effect can be explained like this -The pumping of money leads to oversupply of currency which leads to decrease the value of the Dollar as we can see as compared to other currencies the Dollar value is decreasing. This decrease will lead to appreciate the other currencies and it will directly affect its export. Any country only sustain on its export so they also pumping the money to save their export and we know pumping the money is the last option for the governments. It is causing the inflation will sooner convert in to super inflation. The prices of the commodities will start sky rocketing as we can see the prices increasing day by day. There is now nothing the USA can do to prevent the collapse of its currency, and its economy. It has no reserves to support its value, and has the most indebted country in the world, is dependent of the credit from America’s former enemies.
Over the last couple of days, both Russia and China have said they will be switching their considerable dollar reserves into Euro. Canada, China, India, Brazil, and Australia have all recently taken steps to raise interest rates and/or curtail bank lending. Compare that to the US, which has left interest rates at near-zero for almost two years. It seems the Fed has given up on the idea that the country can build a viable and stable economy through the conventional means. We learned this past Wednesday that the FOMC decided to increase its purchases of longer-dated Treasuries by $600 billion within the next eight months. That means the Fed is on course to fund about 75% of our annual deficit! Such figures are the stock in trade of banana republics. While most of the rest of the world is fighting inflation and strengthening their currencies, we are doing everything in our power to end the dollar’s status as the world’s reserve. Recently the bailout for Anglo-Irish bank reveals that banking system is not in a good health. The first condition does exist. We reach a tipping point. “Monetary history shows that when that tipping point is reached, you normally have 6 to 9 months before the currency collapses completely.
Is There a Viable Alternative to the Dollar?
The dollar became the world’s reserve currency when President Nixon abandoned the gold standard in the 1970’s. The dollar is used for 43% of all cross-border transactions, and 63% the world’s central bank foreign currency reserves are in dollars. The next most popular currency is the euro, which comprises only 30% of reserves. . Although it is increasing rapidly, it is still less than half the amount held in dollars. China and others have argued for a new global currency. However, replacing the dollar would be a massive undertaking, would require great global resolve and not happen quickly. Currently the economic condition of EU is in better than other nations is strengthening the chances of euro to become the alternative currency.
How it will start and how it going to affect the global economies?
Altogether, foreign countries own $2.4 trillion in U.S. Treasuries. If the countries like China Japan and Russia holding the largest share of U.S. Treasuries will start dumping it in to the secondary market, this could cause a panic leading to collapse. China owns $800 billion in U.S. Treasuries. That’s because China pegs its currency, the Yuan, to the dollar. This keeps the prices of its exports to the U.S. relatively cheap. Japan owns $750 billion in Treasuries, also keeping its currency, the yen, low to stimulate exports to the U.S. Japan is trying to move out of a 15 year deflationary cycle. (Source: U.S. Treasury, Major Foreign Holders of Treasury Securities)
But do really China and Japan is going to do so, why they wants to loose there most lucrative market. U.S. is having one of the biggest consumers of China & Japan so do they really want to lose it. However U.S. is still a best market for many countries. (See Demand in the U.S. Economy)
Now what happens if the dollar collapses?
The US and Western economies will all face insolvency simultaneously, with the US first in line. The economies of New Zealand, Australia, Canada and the UK will also totally collapse, as a result of their indebtedness and not being able to service their borrowings. It will result in the Anglo-Saxon nations facing abject poverty, our people facing starvation, and a total break-down in society. The supply chain will stop and stores will empty in less than 3 days. The USD will fall over 50% in one week’s time, till it temporarily stabilizes before its final last gasp. Remember the Lehman panic over those several weeks? Worldwide currency panic will set in paralyzing what’s left of the world economy, that means the ‘emerging markets’ stop dead too. A one world currency will be demanded and implemented. Do you remember what happened that fateful last quarter of 2008, after the Lehman debacle, and the world banking system almost collapsed?
It will be a dark time worldwide.
Self-reliance created wealth in the US, enabling the country to grow. I believe that people who are prepared for hyperinflation, caused by all the money printing at the private Federal Reserve, can deal with it. I my opinion when collapse will take place the prices of stocks will start crashing and the prices of commodities will touch the sky. It is the best time to invest in the commodity market and also make some strategies to invest in stock market but commodity is better option for investment in a long term after viewing the current situation.
About the Author:
Rahul Tyagi – Analyst, industry experience, MBA in Energy Trading. Sound knowledge about oil and gas market, derivative market, exchange base trading and physical trading.