The Day the Dollar Goes Chernobyl: A Natural Reaction or Man-made Catastrophe?

Dr. Paul has been warning of the dollar's imminent collapse for some time now. Images of Germany in October 1923 (or Zimbabwe this morning) illustrate governments’ fiscal policies run amok. And yet, the U.S. Dollar as a reserve currency continues to gather strength compared to other benchmark currencies around the world. There doesn’t seem to be any sign of weakness in this corner of the otherwise lumbering economy. And that’s what’s so worrying.

For some reason, I’ve been noticing flash-points in nature lately. For example, the moment enough heat interacts with the compounds atop a match head, causing a swift flare-up of enormous size compared to the chemicals. Or a thick, grey cumulus cloud passing overhead, looming dark and threatening, suddenly releasing a torrential downpour without warning. I believe it’s the second law of thermodynamics, but such is best left to physicists.

Flash-points occur in the man-made world as well, and with a similar, unexpected violence. In the early morning hours of April 26, 1986, workers at Chernobyl nuclear power plant decided to test the safety procedures of Reactor 4. They reduced its power to bare minimum levels, to see how the reactor would behave if it had to be depowered in an emergency. After the test, the workers increased power to bring it back online. The reactor remained at the bare minimum. The workers increased the power a little more, expecting the reactor to kick in. But it didn’t. Still at bare minimum power. The supervisor nodded for another increase. The workers brought up the power to normal operating level.

BANG! Suddenly, unexpectedly, a flash-point had been exceeded. It wasn’t gradual. It wasn’t measurable. It just happened. It’s a law of physics that hadn’t fully been taken into account. The rest is history. Thousands dead. Mass contamination. An historic disaster.

Back to the present day, and the worst of the economic crisis appears to be in the past. The new administration warns of a dirty clean-up ahead. This apparently involves continuing to create huge amounts of credit out of thin air, and floating vast loans with bonds “promising to pay” at some time in the future.

Investors, those who survived the slaughter of autumn 07, appear confident in the dollar. It’s their last refuge. Stocks are junk, and commodities have dropped into the basement. So what’s left except the greenback?

While investors are pumping their hopes into the dollar, the government has not seen fit to change its ways. In fact, it intends to fight fire with a daisy-cutter and triple the actions that brought on this crisis in the first place.

The fed will widen the credit line like the Grand Canyon, the Treasury department will float their loans, and investors will buy them up secure only in the knowledge there is nowhere else to put their money.

Like a financial Reactor 4, the sluggish banking system will be injected with more and credit, more and more cash will be disbursed, more and more government-backed securities will choke the marketplace. They will spend more, and buy more, and print more…

Question is, when is the flash-point? The point at which the banking system melts down faster than Reactor 4, throwing hyper-inflation all across the world? At what point will the last refuge of the global investor crumble, and his investments get consumed in a conflagration entirely made by an irresponsible, unrealistic government completely at the mercy of natural law?

Most importantly, do the movers and makers of this imminent exercise in physical laws understand what's happening? Dr. Paul suggested as much when he complained about the secrecy surrounding the recent meeting of global bankers at Basel, Switzerland. It remains for We the Pessimists to hold onto our umbrellas and hope the next torrential downpour won't be in worthless greenbacks.