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Need help explaining why dollar is going to collapse

I need help explaining to a friend of mine why we are currently not in just another economic downturn in which we will see the dollar recover from its present devaluation trend . He is a typically financially uninformed middle class family man that thinks I am being a doomsayer by telling him the dollar is not going to recover but in fact is going to collapse sooner or later on this particular recession cycle. I care about him and want to help him protect his family by getting out of debt and buying precious metals, etc. and get him to see the RP is the only candidate that really understands our country's financial situation and can begin to fix it.

He told me that there have been several other economic downturns in the past and that the Fed has always handled them and he doesn’t believe this current situation is any different. I told him what RP (and Peter Schiff and others) have said about things having gotten to the point where the Fed doesn’t have any “tools to fix it” this time but it doesn’t make sense to him because I don’t understand it enough myself to be able to explain it to him adequately.

I would like suggestions on what I should tell him specifically which will help him understand why this time it’s different and what we mean exactly when we say that the Fed doesn’t have the “tools to fix it” this time.

If you would prefer pointing me to another source to read or a video that would be good, too.

Thanks!!!

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My crystal ball is on the blink

My crystal ball is on the blink and I haven't received my mail order, zodiac calender mood watch yet.

First of all , all currency is fiat, not just the dollar. Which means that currencies, gain or lose value against each other. The valuation is ambiguous and is based on many factors including rate of return, supply and demand , as well as faith in the credit of the government backing the currency.

If or when, depending on your point of view, the dollar collapses, it will take with it all other currencies. A dollar collapse would be the end of fiat currency as we know it today taking with it worldwide fractional reserve banking.

It is in no ones best interest to see the dollar collapse. While this is a possibility at some point in the future, in all likelihood, the government would intervene and not allow a complete collapse. A dollar collapse, for all intents and purposes would effectively put Washington out of business.
The blow back would put every other government out of business and ruin any faith in any other fiat currency. Effectively this would halt all international trade and bring every developed nations economy to a grinding halt. While this is possible, its not very probable.

A stronger argument is that the value of the dollar will continue to fall. On average, the dollar has fallen in value about 6% per year. This is the average inflation rate, or debasement rate of the currency. This is likely to continue and increase in the coming years. While it does not fit the definition of a collapse, but it might feel like a collapse. Ugly charts like
http://research.stlouisfed.org/fred2/series/NFORBRES , are simply showing the amount of bank reserves ( cash on hand). This does not point to a dollar collapse. For example if you ran a restaurant and the cash register was suddenly out of cash, but you had checks and credits cards receipts that needed to be deposited and cashed in. You would not be out of business, just simply out of short term cash. if that were to happen, you would simply tap your line of credit at the bank until those checks and credit card receipts cleared. You would not close your restaurant. The above chart shows a similar situation. The chart shows that the banks cash position is down, but does not show the amount of IOUs owed to the bank from its customers. What have the banks done? The same thing the restaurant owner did, then go to their bank, the FED,and borrow short term
until some of the IOUs clear. Assuming both the restaurant owner and the banks run their respective businesses correctly, they will both at some point in the future pay off their credit lines.

Before the dollar collapses, the penny, nickel, dime and quarter will go the way of the dinosaur.The dollar will then become the new penny, and we will have $100, $500, and $1000 bills to replace the $1, $5, and $10 bills.
If you consider this to be a collapse, you had better get off the grid and become self sufficient . While hyperinflation may not constitute a Webster's definition of a collapse, it will certainly feel like one.

col·lapse
Pronunciation:
\kə-ˈlaps\
Function:
verb
1: to fall or shrink together abruptly and completely : fall into a jumbled or flattened mass through the force of external pressure 2: to break down completely : disintegrate 3: to cave or fall in or give way 4: to suddenly lose force, significance, effectiveness, or worth 5: to break down in vital energy, stamina, or self-control through exhaustion or disease; especially : to fall helpless or unconscious6: to fold down into a more compact shape

I believe the collapse is

I believe the collapse is intentional so the zionists can start using the amero money. The very same crap went on in europe just before they went to the euro.

Ron Paul 2012

It's even-scarier in context of THIS graph...

http://www.nytimes.com/imagepages/2008/02/17/business/200802...

But of course, e-gold & the Liberty Dollar are the problem with the financial system. This huge "market" nobody's heard-of couldn't possibly be an issue!
JMR

Holy cow...

...that is scary!

fight4liberty

Hi Meister...

Well, that certainly looks like a drastic change, but what does it means to us regular folks? I have no idea whether it's good or bad (although I suspect the latter ;-))?

Yours in Liberty,

Shovel

Yours in Liberty,

Shovel

"Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote..." ~ Ben Franklin

"The 'cost of freedom' is risk and responsibility..." ~ Me

Try these numbers on for size

Social security...we have promised to take care of the baby boomers, and they will begin retiring in the next decade in masse. We have to make sure they get their checks...it'll be 644 billion next year, and will continue to grow. It's been 63 years since the baby boom began...we have a massive population who's paid into the system and demands something back.

Medicare/Medicaid...combined 632 billion next year. Medicare is for retirees, so this number is going to go up significantly...again, the average baby boomer is late 50's early 60's...and medical costs are going up at exorbitant rates.

Unemployment/welfare...360 billion next year. Largely dependant upon the economy...we're at near historic lows in people unemployed, think of what'll happen to this number if we go back to double digits in job seekers like in the 1980s

Interest on national debt...260 billion. This pays for nothing but the excesses of the past, and is growing by the day as we run huge deficits.

All told...1.89 trillion dollars next year. Federal revenues were only 2.69 trillion. That leaves less than a trillion dollars to defend the world from "evil doers" and run a huge beaurocracy.

Each of these 4 parts of federal spending is growing, and revenues are not keeping up. So what is Uncle Sam to do? 2 solutions

1) Borrow more money...this will increase the payment on the national debt, which means we must borrow more next year to pay for it...which grows...and means borrow more money.

2) Print more money...this will decrease the value of your money. Medical costs will go up, the cost of living will go up, which means we must generate even more money to compensate.

When they do either of these things, the problems get worse.

I do not believe we are on the edge of the hyperinflation cliff...we can sustain the party quite happily for another decade or so. Each year that goes by, these costs will multiply. Eventually...these programs will consume more money than the fed brings in...before we've spent a dime on national defense or running the country. When we get to this point, borrowing will no longer be an option, and we must print the money to make up the difference. Once we start the printing presses, we won't be able to stop them.

It is now when we must change our course...we can still fix this system before we collapse it...but we must get serious. You need to stop predicting imminent collapses and start educating your friends what looms on the horizon. Things we need to do very soon in order to prevent this stuff from happening...

1) Get a real long term fix to social security...as in get out of the business. We must pay off the folks who put the money in, but stop promising the money will be there. I'm 30 years old in 2.5 hours, i'd be happy if Uncle Sam told me tomorrow that there will be no check when i retire...and people will save so they won't be dependant on it. This fix will hurt, but it must hurt.

2) Get rid of unemployment and welfare. We must stop paying unproductive people to sit on their couch. This is a world where you must pull your own weight...I admit, there are people who can't/won't even when forced to...but we must let private charity take over.

3) Reform our medical system...we must get rid of medicaid first of all, this is free medical care for poor people...and they abuse it horribly. They use the emergency room as their primary means of medical care, and that's very expensive. We must stop forcing people into HMO's, because you have no incentive to control your medical costs. It costs the same to me if I go to the doctor once a week or haven't been in 5 years (i'm the latter). Medical insurance should be available, but there's no need to use it for random visits for a chest cold. It should be available for catastrophic cases...like if I get cancer or wrap my car around a pole. This would cost much less. I can pay my doctor cash (or Visa) to check my ears. As for medicare...it's a tough one...can't really cut off the old folks...but I think if we begin to take care of the rest, costs will come down.

4) Balance the budget now, and keep it there. Begin to pay down the debt, a penny at a time. Don't borrow another cent...make the government fit the revenue. This will mean cutting federal jobs, but it must be done.

This garbage about pork and earmarks is wasted breath. It accounts for less that 1% of federal spending...it won't make a dent, I assure you. It's a-hole McCain's way of saying i'm going to shrink government...but it's too little, too late.

The fixes I propose will hurt, but it'll avoid the fate of the Roman Empire. We can not sustain this forever. If we begin to do this, we can begin to decrease our dependance on the income tax, and eventually, do away with it completely, and then repeal the 16th amendment and never let it return. Once we do this...the economy will boom and we'll have dodged the bullet.

Honestly, talk of the sky is falling is counter productive. Instead of talking to your friend about the collapse that is near...throw these numbers at him and ask what his solution would be. We have to be leaders in this movement, and the most important task we have as leaders is to educate our friends with real numbers and real life projections...not doom and gloom, for it gives them a chance to tune us out.

There is no current reason for the currency to collapse in short order, it will take slow erosion before it must reach the hyperinflation point...but know this...once we get to that point, hope is lost, so we must fix it now!

There are a good many adroit comments here

All I can add is: do you and your friend own any tangible assets? Have you converted any FRN's into value-retaining assets (e,g, gold, silver, diamonds, fine art, rhodium, uranium, timberland, business)?

Can you heat your home when natural gas reaches $200 USD per cubic yard?

Can you purchase groceries when corn, rice, beans, and wheat reach $50 USD per bushel?

Can you travel in your car when gasoline reaches $20 USD per gallon?

The answers lie within each individual. 'Evangelizing' friends can be counterproductive and draining on your personal psyche.

This nation has a long history of individualism. And an even longer history, thanks to most of our ancestors, who came here because they were beat-on economically, spiritually and politically. Unfortunately, liberals have been chipping away at our ancestors' common wisdom for a few centuries with a common drumbeat of 'spin' and dependancy on government to solve our imagined problems.

Your ancestors bit on gold coins on payday to ensure they weren't being cheated by their employers. Do you bite on your FRN's to do the same?

Think about it. Why do 2 billion Chinese and Indians convert their rupees and remnibis for gold at every turn? Why, during every festival, do Indians, convert rupees into gold? The answer might be that they have a deep, honest distrust of their governments.

Should we myopic Americans be paying attention to what folks do outside this 'pristine' country of ours? Should we continue to think others outside our borders are 'stupid'? Why do many Indians and Chinese, when arriving in the USA, invest their labor and capital in dry cleaners, liquor stores, car washes, and restaurants? Answer: permanence.

If you take a moment and listen, listen very closely, to what your own ancestors whisper to you, you might hear the real answers to your questions about how to protect their descendants best.

Your friend is right

The dollar will probably not collapse in the short term It will probably collapse EVENTUALLY, when there is Fed chief that makes all the wrong decisions, but that could be 20 years from now, or a hundred years from now, or more. Betting on an imminent collapse would be a very bad bet. But, hey, if you think you're right, place your bets in the market. If you really believe what you're saying there is no reason not to. Here is your opportunity to get rich, betting that the market is wrong.

Who Is This Guy???!!!

Seriously...

Every forum needs an idiot

BillyDee is it... :)

So said the powers-that-were

So said the powers-that-were just before every major Latin American hyperinflation and currency collapse. The one constant that I always remember hearing from the average person in those countries was "We never expected it!", or "We were completely taken by surprise!"

Well, I WON'T be surprised when it happens here.

You are correct.

I remember when the chilean peso was pegged to the dollar 40:1 by Pinochet.

Everything was great, a strong peso, a stable economy. Only problem was that it was a lot cheaper to import goods than buy them locally so not a lot of industry was generated. Eventually though the junta could not keep up the artificially high peso and on a morning just like any other, deregulated the dollar.

The dollar shot through the roof and everybody that borrowed dollars to import machinery, etc was now stuck with having to buy dollars at 10 times the "normal" price. My uncle lost his textile factory because of this and then we were flooded by cheap Chinese textiles as the local industry went under.

Those that bought dollars in the black market before deregulation made a killing. By coincidence, all of Pinochet's generals and circle of friends had been buying dollars in the weeks leading to this....they somehow timed the market perfectly....

Any of this sound familiar?

you have to be

you have to be onevoiceofreason you left for a while now your back trolling again..! lol

as for me and my home, we shall worship the LORD

and you think helicopter ben

and you think helicopter ben is making all the right moves??

as for me and my home, we shall worship the LORD

Yes I do

I think loosening up the money supply has been the right move. It's at the cost of some inflation, but it's preferrable that the Depression that I think there was a good chance of resulting if he didn't.

In the 1920's the Fed didn't increase the money supply, which brought on the Great Depression. This is Milton Friedman's position, which I agree with. Living with some inflation is easier than living through a Great Depression, believe me.

The ideal situation would be to have no Federal Reserve, then the money supply would adjust automatically by the market to its natural rate. But, since we have a Federal Reserve system, there are only two choices that Bernanke has - increase the money supply or decrease it. He just has to make the decision that causes the less harm.

"Living with some inflation is easier than living through

a Great Depression, believe me."

Why, were you there?

Ron Paul "Sign Wave Across the USA" -- November 5th!

Bwahahahahahaha! Some Inflation? Bwahahahaha!

**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **

"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece

You could try this...

http://www.youtube.com/watch?v=z6NfXk7Bvc8

Let him know the dollar isn't crashing -- it's been crashing his whole life. This is just the "end game".

Since 1913 (creation of the "Federal" Reserve), the dollar has lost 98% of its value. At the moment, I'm buying Australian 1966 50-cent pieces for $7.00 each. The fifty-cent coins (containing silver) have held their value while paper money kept on crashing.

In the US, you can still buy a gallon of gas with a pre-65 quarter or a drink with a pre-65 dime.

For fun, try this out: http://www.coinnews.net/tools/automated-silver-coin-valuator/

In 1913, a man could walk into a men's store in buy a nice suit with one ounce of gold or a $20 bill.

That ounce of gold will still buy a suit. The $20?

Maybe socks.

It's different THIS TIME because the dollar can fall no further. All fiat currencies end up at their intrinsic value, which is zero.

You can tell your friend the US is already on its SECOND currency. We've already had one fail -- the Continental dollar.

Good luck.

___________

Lisa C.

http://www.women4ronpaul.com/

Ron Paul "Sign Wave Across the USA" -- November 5th!

Talk About Price Stability

One ounce of gold has been able to purchase about 300 loaves of bread for the past 5,000 years.

PS - I recently read an article that said the US in on its fourth currency. I'm guessing they might be Continental fiat, gold and silver, silver backed fiat and modern fiat.

Ron Paul Explorer: The All Paul Search Engine

It has to do with perception

and all of the reasons mentioned below; but on its most basic level, it has to do with people loosing faith in the dollar. People use the dollar to transfer goods and services for one reason, they believe that it will be worth something at a point in the future when they will be able to transfer that same dollar for something else, save or invest that dollar.

The inherit problem with all fiat currencies is that they are manipulated by an organization--usually a central bank--that has the ability to control the amount of currency and credit within a system. Greed, human nature, political influence, mutant inbred gene pools, etc. all combine to give those in charge the hubris to believe that they can control the very lifeblood of an economy, the money supply. Inevitably, due to technical reasons that were mentioned below--usually a substantial increase in the level of debt--the money supply gets away from its masters, and they are forced to hyperinflate the currency even further, to pay off the preexisting debt, prop up banks that made bad loans, etc.

Hyperinflation in money supply leads those who use the currency to start questioning it's value. Think of this: everyone in Zimbabwe is a millionaire, yet most everyone is poor. The problem with the Federal Reserve Notes (FRNs) being hyperinflated is that the FRN's are the world's reserve currency; and for the most part, oil transactions are paid for in FRNs. So, when we get deeper into hyperinflation, and foreign investors realize that in the long term, that the yield on the U.S. debt that they hold is no longer keeping up with the monetary inflation; they are going to loose faith in the dollar. This loss of faith will lead them to sell dollars on the currency markets, and those dollars will come home to roost. This will cause hyperinflation within the United States that will not be paralleled in all of history. People in the U.S. will loose complete faith in the dollar. Overnight, price hyperinflation will be replaced with 100% price deflation--no one will think the dollar is money anymore-- and merchants will refuse to accept it for purchases. This scenario could cause the world economies to question all fiat currencies, and we could possibly see a sudden and massive transfer of wealth into gold and silver--i.e. money that is money because of its inherent properties, not because of a promise of a corrupt banking system. What is also interesting to note the fact that empires fall when their currencies become worthless.

It certainly makes for interesting times.

--------------------------------
"the only thing that keeps the banking system from failing is general ignorance about how the banking system works."
----------------------------

hahaha 600 TRILLION IN

hahaha 600 TRILLION IN DERIVATIVES! 13 billion per month in afghanistan and Iraq! 50 billion to bearstearns and it goes on and on.. all that money created out of thin air.. or I should say.. counterfeited out of thin air!

as for me and my home, we shall worship the LORD

740 trillion now, actually..

If you follow the exponential curve, we will hit 1 QUADRILLION by 2011. The entire planet has an estimated retail value of 75 trillion.

We've spent years spreading our inflation globally to keep our fiat dollar afloat. Now the globe is saturated... so it's coming to the time where other countries are going to have to take care of us, or take care of themselves.

Any bets on what China is going to do?...lol

____________________________________

Http://forums.libertylove.org

~Live life to its fullest, with an open heart, open arms and most important... an open mind~

I'll take a stab

First some facts. The US government has borrowed over $9 trillion dollars. The latest budget proposed by Bush II projects (optimistically) a $400 trillion deficit. To continue at existing levels, our government needs to continue to borrow money at a tremendous rate. But there are signs that the people who have been lending us all this money are starting to resist and for good reason.

The dollar is showing signs of accelerating inflation. If we calculate the rate of inflation using the more honest formula used by the government back in 1980, current inflation is running somewhere around 10%. So the actual exchange value of the $9 trillion dollars being held by our creditors is depreciating at 10% annually. This far exceeds the interest we are paying them on those loans. Anyone holding US debt instruments is getting screwed. Inflation not only destroys the middle class, personal savings, and those on fixed incomes. It also destroys the credit market because lenders can't predict how much the money will be devalued before they get paid back. So they stop lending.

When our lenders stop lending our government money, we will have two choices - dramatically reduce spending or print money to cover expenses. Printing money seems easier at first because it appeases the people who are clamoring to be paid and the injury it does is spread widely and comes in the night like a thief. So I predict that the government will inflate the currency to cover its deficits.

But our deficits have only just begun. Unfunded obligations under Medicare and Social Security are estimated to exceed $50 trillion. These obligations will come due over the next 30 years. No conceivable scheme of taxation or rate of growth can solve this problem. Again, I predict the government will try to print money to solve this problem.

And government debt is not the only debt that is threatening to undermine us. The Federal Reserve's loose monetary policy has stimulated MASSIVE borrowing for commercial and consumer purposes. The result is a bubble of money that does not really exist. As people begin to default on these loans, banks will be in dire straights and will look to the government for bail outs. I predict the government will print money to cover these bailouts.

Finally, and perhaps worst of all, the US dollar is losing its status as the currency of world trade and Central Bank reserves. Since WWII, the dollar has been the currency of world trade and the currency held by most of the world's central banks as a reserve. For example, the world's oil business has been transacted in dollars. Countries that want to buy oil first have to acquire dollars. This has created a huge demand for dollars. The huge demand has helped to support the Fed's increase in supply of dollars. But things are changing. Not only are many countries moving away from using the dollar as a reserve currency, but the dollar's role as the currency of international commerce is also weakening. For example, Iran is opening an oil market that will not trade in dollars. The international demand for dollars is weakening AND if the big holders of dollars see inflation taking off, there is going to be a race to unload dollars - perhaps very quickly.

When the international demand for dollars decreases, and when our government is forced to print money to pay its obligations, you have rising supply and declining demand - perhaps a catastrophic collapse in demand as countries around the world frantically dump their dollars to avoid the ravages of inflation. Rising supply and declining demand means inflation. Perhaps hyper inflation. Hyper inflation is about the worst thing that can happen to an economy.

The government "could" just default on its debt and let all the banks go under as well. If it did this, essentially letting the credit bubble pop, we might have deflation instead of inflation, and the dollar would strengthen. But the consequence would be a catastrophic depression. I think the government will inflate the currency to try and prevent facing the music until it will be too late to avoid hyper inflation. Then the currency will collapse.

Edit your post please

The deficit is not 400 trillion dollars...it's 400 billion.

If it was 400 trillion dollars...hyperinflation would have already been here.

Excellent. Thank you very much!

I surprised myself and pretty much understood everything you said. You did an excellent job of writing. I do believe I've got it now!

Besides understanding why the dollar collapse is all but inevitable, you also helped me understand that the banks could default on their debts which would cause "deflation" (a decrease in the amount of dollars in circulation) which would then lead to a depression. I'm not used to thinking about that option.

Gee, that's great we have a choice of either hyperinflation and the dollar collapsing or a catastrophic depression. Lucky us!!

Time to get a massive voter education program on economics going folks!!

(I'm going to copy this to Word and print some copies for my friends and families.)

Thanks very much, Acala!

fight4liberty

Here ya go...

http://www.dailypaul.com/node/47951

**“The man who does not read good books has no advantage over the man who cannot read them.” ~ Mark Twain **

"...there is no doubt that it (socialism) could not possibly have affected us so widely and so deeply as it has, had it not been heavily financed". - B. Carroll Reece

Thank you very much...

...for your help.

fight4liberty

bump

Bump for help. Someone one here will be able to give you a better explaination than I can. I would just make you more confused as it is a very complicated thing to explain. But there are some ver intelligent people here who should be able to help you