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How the US Dollar could eventually collapse

Discussion in 'Preparedness & Survival' started by ATCclears, Oct 24, 2013.

  1. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    The American Spectator : How the Dollar Could Eventually Collapse

    Two events last week were a reminder, as if any were still needed.

    The great issue in Washington that divides Republican and Democrats is whether we can go on running deficits and piling up the national debt without some day reaching a point of reckoning.

    Democrats adhere to the Keynesian/Paul Krugman school, which says that “deficits don’t matter,” “we owe it to ourselves,” and that printing money is the best and fairest way to stimulate the economy. (Actually, this viewpoint is adopted by whichever party happens to be in power. The Republicans argued the same thing when they controlled the government during the Bush and Reagan years.)

    The Republicans and other green-eyeshade types argue that out-of-control deficit spending can’t go on. It’s like a household budget. Any country that runs up a negative account balance will eventually hit bankruptcy. If it tries to inflate its way out of debt, people will start to doubt the value of money and the currency will collapse. Savings will be wiped out and the nation will become penurious.

    So far the neo-Keynesians seem to be winning. Federal Reserve Chairman Ben Bernanke has been pursuing his policy of “quantitative easing” (which just means printing more dollars) for five years without producing any negative consequences. Inflation has remained low and the dollar has actually strengthened against some currencies, particularly the Euro as European countries sink into their own financial crises. True, we have now run up a national debt of approximately 100 percent of GDP, which is exactly where Greece was when things started to fall apart. But as everyone observes, no one really thinks the United States is as vulnerable as a little country 11 million people that lives on olives and tourism.

    Then there is the example of Japan. The Japanese have had a national debt of 200 percent of GDP for nearly a decade. True, their economy has been in the doldrums for almost two decades and no one talks about the Japanese overtaking the American economy anymore. But once again the Japanese experience seems to confirm that “deficits don’t matter.” You can run up a huge national debt without suffering any immediate consequences.

    Two things happened in London last week, however, that indicate there might be a flaw to this argument after all. There won’t be any consequences next week or the week after, but in the long run they may point to the place where America’s house of cards — or paper dollars — could eventually collapse. As Kenneth Rogoff, co-author of This Time It’s Different, says, “Any country that sits with a historically large debt for too long is taking a chance that some out-of-the-box event will shake up markets and raise interest rates to the point where funding becomes very painful. Wars and unexpected catastrophes do happen and the historical transformations that follow can occur.”

    So here’s what happened in London:

    The British, faced with declining natural gas production in the North Sea and reluctant to embrace fracking, are facing power blackouts this winter. So they have decided to go with nuclear. They have quickly discovered, however, that America no longer has a nuclear industry and France, the one European country that has embraced nuclear, is bogged down in bureaucracy and political opposition. So they have turned to the country where nuclear construction and technology are making rapid progress — China. Last week Chancellor of the Exchequer George Osborne announced he would allow Chinese nuclear companies to invest in British reactor projects and eventually take ownership of them.
    Almost simultaneously, the Exchequer announced that Britain will allow Chinese banks to set up branches for wholesale banking in London. The decision is part of an effort to steal a mark on Frankfurt and Paris to become the hub of trading in the Yuan, the Chinese currency, in Europe. Having Chinese banks operating in London will allow direct trading between the Yuan and the British pound, instead of going by way of the dollar as things are done now.

    The significance of these two events is hard to convey without sounding alarmed, but I will give it a try. First the nuclear part. At the end of the day, as the saying goes, the world is going to have little choice except to go nuclear. China and India are already proving that, even if you’re not particularly concerned about global warming, running an industrial nation on coal produces insufferable air pollution. China just passed the United States on total electricity generated and China and India combined will probably have to produce ten times more if they are to lift their populations out of poverty — which their people desperately want. We may be able to divert ourselves into natural gas for awhile, even though it is a huge waste. (Gas would be much better utilized as methanol to run our cars.) But in the end, the world is going to move to nuclear power — there is no other way.

    All this will create enormous economic opportunities. Countries that can build nuclear infrastructure are going to grow rich. The Koreans have landed a $20 billion contract to build four reactors in the United Arab Emirates and that is just the beginning. The Hinckley Point Reactor in Britain — the one the Chinese are investing in — is estimated at $22 billion. There are 70 reactors under construction right now, mostly in Russia and Asia. The builders include Russia, China, Korea and Japan,— which is still selling its technology abroad even though public opinion is opposing it at home. France was in the lead for awhile but has fallen victim to the general sclerosis of European institutions. At the Olkiluoto project in Finland, the Finnish environmental bureaucracy has taken months to sign off on approvals that were supposed to be done in days and the project is now five years behind schedule with completion still out of sight. Before she was forced out of her job, Anne Lauvergeon, former CEO of France’s Areva, was complaining that the Chinese were able to build French-designed reactors faster and cheaper than the French could themselves.

    So the task or producing the world’s industrial infrastructure is rapidly shifting from West to East. So will the cutting edge of innovation. Bill Gates sat in the lobby of the Nuclear Regulatory Commission in Beltsville, Maryland, for a year (figuratively) before finally realizing the task of getting the bureaucrats to look at his Traveling Wave reactor was hopeless. So he took his invention to China. The design, which burns continuously for 50 years, consuming its own waste in the process, is now being developed by the Chinese National Nuclear Corporation.

    That’s one thing. Now what about this banking business? Well, the Chinese here are striking at our Achilles’ heel — the role of the dollar as the world’s reserve currency. Let’s go back to Ben Bernanke’s “qualitative easing” and the argument that the national debt doesn’t matter because “we owe it to ourselves.” The fact is we don’t owe it to ourselves anymore. Fully one-third of our debt is owned by foreigners. China and Japan are the largest stakeholders, each owning 7 percent. If we just owed this money to American investors, we could just stiff them the way the government stiffed bondholders at GM and Chrysler — or the way savers are currently being stiffed by the Fed’s zero interest rates. There is nothing anyone could do except move their money abroad. (This is apparently already happening, since the U.S. is experiencing a negative investment capital outflow.)

    But the real danger lies in the dollar’s role as the world’s reserve currency. This is the legacy of our hugely productive economy during and after World War II when we played the role of world leadership. “At the Bretton Woods Conference of 1944, the major western powers turned over responsibility for maintaining a stable world currency to the United States,” says Lewis Lehrman, the long-time advocate of the gold standard. “Unfortunately, it’s a responsibility that we haven’t fulfilled.”

    Until 1971, the dollar was pegged to gold at $35 an ounce. But with inflation raging and gold flying out of Fort Knox, President Nixon renounced the exchange rate and said that the dollar would float against other currencies. “Since 1971 we’ve been living in an era of inconvertible paper currency,” says Lehrman. Gold now sells at $1300 an ounce, a 2000 percent depreciation since 1971.

    So what “quantitative easing” really means is that we are dumping out domestic profligacy on the rest of the world. We go on running up debt and printing dollars and the rest of the world is forced to take them because, based on its former stability, the dollar still serves as the international means of exchange in 60 percent of world trade. There are now more $100 bills circulating abroad than at home. It’s the kind of situation that will go on until someone successfully challenges the dollar’s role as the world currency.

    That challenge will almost certainly come from China.

    As holders of $1.1 trillion in American debt, the Chinese are the principal victims of our inflationary policies. So far, however, there’s not much they can do about it. In 2009, as the American economy was collapsing, Chinese Prime Minister Wen Jiabao warned “We have lent a huge mount of money to the US. Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” The Chinese can’t rock the boat too hard, however, without endangering their own assets. As the great swindler Billie Sol Estes once said, “When you owe someone $1000, you’re in debt. When you owe them $1 million, you’ve got yourself a partner.”

    What the Chinese have been doing, however, is quietly building a financial infrastructure that would allow them and the rest of the world to free themselves from dependency on the dollar. They have suggested substituting promissory notes from the International Monetary Fund in world trade and struck deals with Russia and the OPEC nations to trade outside the dollar. They have established direct exchange of the yuan with Hong Kong, Taiwan and Singapore. Last spring Australia agreed to make its currencies directly convertible with the yuan and has since shifted 5 percent of its reserve holdings into yuan instead of dollars. The Chinese are negotiating a similar arrangement with New Zealand. And now they will be moving into London and the European market as well.

    All this may seem very distant but it represents an historical shift that could come about very quickly. “We hear arguments that China has a long was to go before they could become a major international reserve currency but let’s not kid ourselves. The process is already underway and a lot further down the road than most people think,” says Stuart Oakley, head of foreign exchange trading at Nomura, a global investment bank in Singapore. Michael Pento, president of Pento Portfolio Strategies, who writes frequently for Huffington Post, adds: “The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world’s reserve currency. It’s a thousand times more important than a nuclear bomb being tested by North Korea. Yet we are doing everything to abuse that status.”

    At any one time, up to 35 percent of the dollar’s value comes from its role in international trade. This is what differentiates us from Japan, which may have twice our national debt but does not have the same exposure in international markets. If the dollar were to be toppled from its role as the world’s reserve currency, it would set off a run on the dollar in which every American could lose up to a third of his net worth.

    At that point, people might start paying attention to what the Tea Party is saying.
  2. lucifermonkey

    lucifermonkey Portland, OR Well-Known Member

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    Nice book. Does that count as 3 posts?
    Just kidding, good stuff. :flag:
  3. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    That article is perhaps the most tangible hypothesis that I've read to date on how a transition could happen for the informal, reserve currency (emphasis on informal since there is no law saying it has to be the US Dollar).

  4. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    In the meantime, the boiling frog syndrome continues for the US middle class. When people ask 'when is the collapse coming?' I answer "right now, it is just happening in slow motion." That is why people who are taking on more debt and living like there is 'nothing wrong', steeped in Normalcy Bias, are fools.

    1. According to the most recent numbers from the U.S. Census Bureau, 49.2 percent of all Americans are receiving benefits from at least one government program.

    2. The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.

    3. An increasing number of employers are encouraging their low wage employees to supplement their wages by going on government welfare programs. For example, McDonald’s workers that need help making ends meet are being instructed to go on food stamps…

    McDonald’s workers who are unable to pay their bills or stay above the poverty line should find help from food pantries or enlist in government benefit programs instead of seeking higher wages, according to a company resource line meant to help employees.

    Nancy Salgado has worked for the fast-food corporation for over 10 years yet still earns $8.25 an hour, barely more than the $7.25 federal minimum wage. With help from the worker’s rights group Low Pay Is Not Ok, she phoned the company’s employee hotline, known as McResource, attempting to find some answers on how to improve her situation.

    A recording of the call was made available to CNN, which reported that Salgado asked the helpline operator multiple questions regarding how McDonalds would help her pay her heating bill, buy groceries, and whether she could afford to help pay for her sister’s medical treatment.

    Despite never asking how much money Salgado earned per hour or asking how many hours a week she worked, the McDonalds representative said she “definitely should be able to qualify for both food stamps and heating assistance.”

    4. Total consumer credit has risen by a whopping 22 percent over the past three years.

    5. Student loans are up by an astounding 61 percent over the past three years.

    6. According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.

    7. Right now the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

    8. Ordinary Americans are being priced out of the housing market. Today, nearly half of all home purchases are all-cash deals.

    9. The homeownership rate in the United States is now at the lowest level it has been in nearly 18 years.

    10. The gap between the rich and the poor in the United States is at an all-time record high.

    11. U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

    12. Every single day, thousands of Americans are receiving letters in the mail informing them that their old health insurance policies have been canceled. According to a recent Kaiser Health News article, some companies have already sent out hundreds of thousands of cancellation notices…

    Florida Blue, for example, is terminating about 300,000 policies, about 80 percent of its individual policies in the state. Kaiser Permanente in California has sent notices to 160,000 people – about half of its individual business in the state. Insurer Highmark in Pittsburgh is dropping about 20 percent of its individual market customers, while Independence Blue Cross, the major insurer in Philadelphia, is dropping about 45 percent.

    13. Those that are losing their current health insurance policies will have to replace them with new policies that are often much more expensive. According to health policy expert Bob Laszewski, 16 million people could ultimately have their health insurance policies canceled because of Obamacare…

    The U.S. individual health insurance market currently totals about 19 million people. Because the Obama administration’s regulations on grandfathering existing plans were so stringent about 85% of those, 16 million, are not grandfathered and must comply with Obamacare at their next renewal. The rules are very complex. For example, if you had an individual plan in March of 2010 when the law was passed and you only increased the deductible from $1,000 to $1,500 in the years since, your plan has lost its grandfather status and it will no longer be available to you when it would have renewed in 2014.

    These 16 million people are now receiving letters from their carriers saying they are losing their current coverage and must re-enroll in order to avoid a break in coverage and comply with the new health law’s benefit mandates––the vast majority by January 1. Most of these will be seeing some pretty big rate increases.

    14. Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 54.9 percent of all Americans are covered by employment-based health insurance.

    15. More Americans than ever find themselves forced to turn to the government for help with health care. At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.

    16. The U.S. labor force participation rate is at a 35 year low.

    17. Only 47 percent of all adults in America have a full-time job at this point.

    18. It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.

    19. Approximately one out of every four part-time workers in America is living below the poverty line.

    20. After accounting for inflation, right now 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.

    21. Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

    22. At this point, almost half of all public school students in America come from low income homes.

    23. The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

    24. Right now, one out of every five households in the United States is on food stamps.

    25. An increasing number of Americans do not even believe that they have a pleasant retirement to look forward to. One recent survey found that the percentage of middle class Americans that “plan to work until they die” is now higher than ever.

    - End of the American Dream blog.
  5. cookie

    cookie THE SOCIALIST STATE OF KALI - FORNIA Well-Known Member

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    US Dollar could eventually collapse. Then the door will be opened for the Amero dollar to be accepted by the mass of mindless people in this country. Also I see Obama care as the best thing that can happen for the corporations and business . All of a sudden they will be free of having the expense [which is huge] of providing medical insurance for their workers. The CEOs will get even bigger bonuses ! The little people will glory in being peons. All this has been planned for many years and talked about openly if you were paying attention.
    Hook686 and (deleted member) like this.
  6. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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  7. CoastRange57

    CoastRange57 Western Oregon Bronze Supporter Bronze Supporter

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    It has been happening for a number of years. Depressing the viable economy of a great nation leads it to being much easier to make reliance on social issues, and fracturing the masses. It will only continue to decline, but will reach an expotential point at which it is impossible to recover from,and will accelerate faster in the later years than the early years.

    The US dollar will not eventually collapse. It is already well on its way to being devalued to the point of being worthless as wealth preservation. These movements of economies and social mores are never light switch quick, just like SHTF is not going to happen all at once. SHTF will happen over several years, unless natural disasters or grid and infrastructure issues help it along.
    Burt Gummer and (deleted member) like this.
  8. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    True example for us. Wife buys an 8oz bar of baking chocolate about a year ago for say $6. She buys another box recently. Here is the kicker: the outside of the new box is nearly the same size, the volume is only 4oz, and the price was about $5. Both of these purchases were at Albertsons.

    Hidden inflation. It's everywhere. Even paper towel or bandaids at Costco.

    Burt Gummer and (deleted member) like this.
  9. Gaucho Gringo

    Gaucho Gringo Vancouver, WA Well-Known Member

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    If the Chinese really wanted to they could cripple us in less than 3 months. All they would have to do is cut off all imports to the US if they were willing to absorb the short term pain of doing so. We don't make anything here anymore. Look at everything in your house today and see where it was made. Almost of the things I have that were made in USA were made before 1950. Example I have an old electric barber's shears that were my grandfather's who died in 1954. I have used them to trim my beard since the 1970's. My son who was born in 1987 uses them for his hair when his new ones are broken down. He is now on his third pair of new barber's shears since 2001. If the industrial capacity of the US at the start of WWII was the same as it is today we would all be speaking German and be giving Hiel salutes to our leaders. We are now a paper tiger. We did it to ourselves. Example: bought a new Maytag dishwasher about 4 years ago which I was very proud of because Maytag's are built in the USA--WRONG said my good friend who was a plumber-look at the ID plate. It was made in China like about 99% of all the others are. It was just a name to be bought and sold as so many other name are, having no relationship to who actually manufactured it. A very sobering realization. Even lumber and wood products which were once overwhelmingly all US with a percentage of Canadian products are increasingly coming from someplace else. The promoters of the NEW WORLD ECONOMIC ORDER have a vision and it sure as h**l is not in our favor. Andrew Jackson's distrust of bankers was well founded.
    Burt Gummer and (deleted member) like this.
  10. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    ^^ Great post Gaucho, and absolutely true. The USA was complete defeated (economically) the minute we decided to compete against slaves/workers abroad making $2/day.

    "We" make (nearly) nothing now. Our exports are fiat toilet paper in the form of treasury notes, invasions, occupations, tyranny, and death. We in parenthesis because we the people are really non-voting common stock and have no say in what our government does anymore.

    The Entire Fiat Money System is Bankrupt: Demise of the Global US Fiat Dollar Reserve Currency | Global Research

    JPMorgan Chase

    Total Assets: $1,948,150,000,000 (just over 1.9 trillion dollars)

    Total Exposure To Derivatives: $70,287,894,000,000 (more than 70 trillion dollars)


    Total Assets: $1,306,258,000,000 (a bit more than 1.3 trillion dollars)

    Total Exposure To Derivatives: $58,471,038,000,000 (more than 58 trillion dollars)

    Bank Of America

    Total Assets: $1,458,091,000,000 (a bit more than 1.4 trillion dollars)

    Total Exposure To Derivatives: $44,543,003,000,000 (more than 44 trillion dollars)

    Goldman Sachs

    Total Assets: $113,743,000,000 (a bit more than 113 billion dollars – yes, you read that correctly)

    Total Exposure To Derivatives: $42,251,600,000,000 (more than 42 trillion dollars)


    And the biggest chunk of those derivatives are interest rate derivatives.

    According to the Bank for International Settlements, the global financial system has a total of 441 TRILLION dollars worth of exposure to interest rate derivatives.

    Wall Street has been transformed into the largest and wildest casino the world has ever seen, and at some point all of this reckless gambling is going to end very, very badly.

    - Italic part -credit to the Economic Collapse Blog