Collapse of the Dollar?


The US Dollars that are blowing around represent the potential collapse of the dollar due to the uncontrollable spending of the federal government and represents one of the following points of interest:
  1. The United States is essentially bankrupt with over thirteen trillion dollars in debt and more being added by the minute. The time will shortly come when we will not have enough money in the federal budget to pay the interest on America's borrowed money. When that day arrives, the US Treasury Secretary will declare a "force measure". Within days of this repudiation of the US deficit, everyone will be scrambling to dump their US currency.
  2. A dollar collapse is when the value of the dollar falls so fast that all those who hold dollars panic, and sell them at any cost. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them, driving the value of the dollar down to near zero.
  3. We have never seen a collapse of a currency like the dollar. Even the hyperinflation during Germany's Wiemar Period cannot serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to the U.S. shores than any country has ever experienced. Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice. If the panic out of the dollar starts, even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. could cause a huge price inflation all on its own.
  4. The Office of Management and Budget forecasts that, by the end of fiscal year 2012, gross federal debt will total $16.3 trillion. Thus, the debt will equal 101% of gross domestic product, which represents a milestone in the U.S. economy. Public debt alone, which excludes amounts that the government essentially owes itself, will be 67% of GDP by the end of fiscal 2012.
  5. President Obama's budget plans call for running the national debt to $16.2-trillion by 2012, and an astounding $20-trillion by 2015.  The projected run-up in the national debt from 2009-2015 is equivalent to the total debt accrued under the previous 43 presidents combined.
  6. It took the U.S. government 191 years, from 1791 until 1982, to run up its first trillion dollars in debt.  It only took four years after that for Congress to add another trillion dollars to the total.
  7. Don't blame the rising debt on inflation:  Between 1946 and 1982, the national debt was virtually unchanged, even with inflation taken into account. However, all that changed in 1983.  Since then, with the notable exceptions of 2000 and 2001, the national debt has crept upward at an exponential pace.
  8. Our founding fathers weren't adept at managing debt either.  In 1791, the national debt was a mere $75 million.  But that is equivalent to $5.2 trillion in 2008 dollars if you take into account then-year debt relative to the GDP.
  9. The US government is funding its deficit spending by borrowing at an unsustainable rate. China holds over a trillion dollars worth of US Treasury bonds and debt. An even uglier fact is that China holds massive investments in private US corporations and has hidden the extent of its holdings through third parties. Simply put, China has the power to destroy what is left of America's fleeced financial system. If China sells its massive dollar holdings, the value of the 'mighty US dollar' will plummet. If America fails to pay its debt, China can claim America's government assets in the same way a bank forecloses on your house if you don't make the payments.
  10. Sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue. In other words, all discretionary spending (e.g., defense, homeland security, law enforcement, education, etc.) will require borrowing and related deficit spending.
  11. The Federal Reserve Bank continues to print money at will. The billions of dollars that have been created out of thin air because of the stimulus package are only decreasing the value of the dollar. Not only is the value of the dollar decreasing, the Federal Reserve Bank is causing people to do things that they normally would not do. With extremely low interest rates people are going to buy homes. There is no problem with people buying homes except that many of these homebuyers cannot truly afford homes. For reference to this take a look at the subprime mortgage crisis.
  12. Public debt owned by foreigners has increased to approximately $4.5 trillion. As a result, a large percentage of the interest payments are now leaving the country, which is different from past years when interest was paid to U.S. citizens holding the public debt. Nearly half of the debt increases over the 2009-2019 period will be due to interest. The debt is projected to nearly double to $20 trillion by 2015, but is expected to increase to nearly 100% of GDP by 2020 and remain at that level thereafter. These estimates assume real GDP growth (after inflation) ranging from 2.6% to 4.6% annually from 2010 through 2019, at 24% and 20% respectively.
  13. In 2009 a number of countries, including China and Russia, proposed that the dollar should be replaced with a global currency. This would create the biggest overhaul of the world's monetary system since the Second World War. If another currency or basket of currencies replaced the dollar as the reserve currency, the U.S. will need to offer higher interest rates to attract capital, reducing long-term economic growth. It would cause a Depression of dismal proportions.
  14. At every step in this great dollar decline, the Fed chief has sworn that he supports a strong dollar. He has promised that the dollar would retain its dominant role as the world's reserve currency. But in reality, Bernanke has done absolutely nothing to halt the dollar's fall. To the contrary: The Fed Chief has been printing new, unbacked dollars like there's no tomorrow a move that can only cause the dollar's value to vanish faster!
  15. American exports are continuing their decline; imports are also plummeting, but not as sharply as exports, contributing to a widening trade gap. In essence, America's economy will continue to decline. So here we have a perfect fiscal storm; quantitative easing by the Federal Reserve, massive overseas borrowing by the Federal government to pay its basic operating expenses, and massive borrowing or printing of dollars to pay for imports not covered by the net value of America's exports.


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