Is it possible for the dollar to collapse?

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contactluke's picture
contactluke
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Is it possible for the dollar to collapse?

Hi,
Firstly I must say that I'm new to the crash course, however having seen it a few times now I am more and more convinced by it. However I don't feel that I can explain it well enough to my peers...
I asked them recently if they thought that a $ collapse was possible, and they concluded that unless the $ is stopped being used to buy oil, or everyone stopped trading with them, it was highly unlikely.
What are other peoples thoughts on this?

DrKrbyLuv's picture
DrKrbyLuv
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Posts: 1995
Re: Is it possible for the dollar to collapse?

I think you may be mixing two concepts together.

First, the dollar, via the Brenton Woods agreement, is the world's reserve currency. That means that international trade is basically traded in dollars. If for example, Germany wants to buy oil from Saudi Arabia, it must do so with dollars. The United States has exploited this privilege for over 40 years through fraud and market manipulation. It is very unlikely that the US dollar may continue to be the world's reserve currency - they are already working on a replacement.

As for the dollar collapsing, it has been occurring since the Federal Reserve system began in 1913. The only thing different now, is the rate has been accelerating.

mainecooncat's picture
mainecooncat
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Re: Is it possible for the dollar to collapse?
contactluke wrote:

...unless the $ is stopped being used to buy oil...

This was the main reason for removing the administration of Saddam Hussein in 2003. He was entering into long-term contracts with almost exclusively Russian and Chinese companies and was attempting to price those contracts in Euros. And for reasons that are logical and as plain as day in the context of geopolitics and rule of force, his regime was toppled.

If Saddam had succeeded in doing this he would have established what many political theorists call "the threat of a successful example." Undoubtedly, coupled with the fundamental long-term problems with the US dollar, this would have caused others to do the same.

The result: Well, it's what's going to happen by all signs now anyway, the loss of total US economic and military hegemony. The obsolescence of "full-spectrum dominance."

bearing01's picture
bearing01
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Re: Is it possible for the dollar to collapse?

contactluke,

The claim you just made was that because the dollar is the world's reserve currency then it should not collapse.  Reserve currency meaning that all nations hold some US dollars so they can do international trade.  If nations have no reason to hold US dollars then they will just spend all of them.  All those trillions of US dollars in foreign banks would then come back to US soil.  Hyperinflation?

Many nations want to eliminate the US dollar as the world's reserve currency.  Many want, and have been, trading oil using the Euro.  There are talks of Russia, Asia and Saudi Arabia coming up with their own new currency to replace the dollar as the currency for trade.  This most likely will happen in the future.  The US dollar will loose its reserve status.

Why is the dollar so bad? In the beginning Gold was the currency used for trade among nations.  Gold cannot be created out of thin air.  It is a relatively stable medium of exchange (currency) and therefore can be no counterfitting.  People have confidence in it because no gov't can counterfit it.  After WWII in 1944 in a time of crisis where a stable trading currency was required, the nations came up with the Bretton Woods agreement where the US dollar would essentially be a certificate equivalent to owning gold (the US because they had the biggest & strongest economy).  Every US dollar would have some gold in the US Treasury to back it up.  But in this agreement individual citizens cannot redeem their dollars for Gold.  Only the central banks of other countries can demand their US dollars be redeemend for gold.  The fly in the ointment was that the US Federal Reserve continued to expand the US money supply and this created inflation world wide.  Over time the gold standard fell apart and in 1971 Nixon ended it.

The US dollar Legacy continued after 1971.  The Problem is that the Federal Reserve has full control of the printing press, which is just a counterfitting machine.  As Chris's video states, every single new dollar is created to purchase debt.  The dollar has become a debt instrument.  The US is the world's largest debtor nation and owns the printing press to keep printing to buy up debt.  Faith in the US dollar relies on the US gov'ts ability to pay back its debts.  We have been running trade and fiscial deficits year after year and borrowing more to pay back the previous debt, just rolling our debt over - with no time in sight of being able to pay any of it back.  The Federal Reserve expansion of the money supply diminishes the value of the US dollar and therefore future debt holders get paid back the same number of dollars with weaker purchasing power.  This is a form of default / insolvency, but the trick is that the US gov't has power to report bogus CPI numbers and tampering with the gold market (valuation of gold) which can make the dollar appear to have more strength than it really does.  This maintains confidence in the US dollar.  Once confidence is lost (people believe the dollar's purchasing power will fall) everyone will want to immediately spend their US dollars for hard assets.  That will only enforce the rise of price inflation and can lead to hyperinflation.

It is difficult to run business when the medium of exchange is constantly being devalued.  We know the dollar is a poor storage of wealth.  Since the federal Reserve was created in 1913 the dollar has lost 95% of its purchasing power!  Also, without knowing true price inflation and the true cost of doing future business or the expected future revenue in terms of real money it really makes it difficult to do business. The problem lies in the flawed monetary system.

What we really need is a stable money supply.  This will support confidence in the currency used for exchange and improves business transaction.  One form of stable money is a gold backed currency that does not permit the gov't to counterfit more money.  Another is the requirement to increase fractional banking reserve requirements (less credit creation by banks).  With such a system you also need to permit wages to fluctuate with market supply/demand and also allow prices to rise/fall as mer market demand.  Otherwise, when productivity causes prices to fall (ie: computers today are thousands more cheaper than they were in the 1980's) the purchasing power of the money will increase.  Real wages go up and if they go up too much it can cause unemployment.  Debt will also have to be managed such that the principle can be allowed to vary if there is an increase in money purchasing power that results in reduced wages.  If today debt is paid back with interest because of anticipated future dollar weakness then it should be paid back with negative interest if the dollar is expected to strengthen.

Another point to make is that savings are what permits investment for future increases in production.  This creates more prosperity (savings can be used directly as investment or can be lent to someone else for other investments).    Expansion of the money supply (inflation) dilutes the value of existing savings and therefore reduces the capital available for investment.  As capital is reduced, so is the ability increase future production.  This reduces future prosperity. This is another reason to end the central bank's inflation machine.

When the Federal Reserve expands the money supply they cannot create wealth and give it to the people for investment.  All they have is a printing press. When they print all it does is dilute the money.  Those who receive the new money essentially steal the wealth from those who have earned wealth and saved it in the form of dollars.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: Is it possible for the dollar to collapse?
mainecooncat wrote:
contactluke wrote:

...unless the $ is stopped being used to buy oil...

This was the main reason for removing the administration of Saddam Hussein in 2003. He was entering into long-term contracts with almost exclusively Russian and Chinese companies and was attempting to price those contracts in Euros. And for reasons that are logical and as plain as day in the context of geopolitics and rule of force, his regime was toppled.

If Saddam had succeeded in doing this he would have established what many political theorists call "the threat of a successful example." Undoubtedly, coupled with the fundamental long-term problems with the US dollar, this would have caused others to do the same.

The result: Well, it's what's going to happen by all signs now anyway, the loss of total US economic and military hegemony. The obsolescence of "full-spectrum dominance."

I think the article below addresses a more pressing concern and higher priority reason for removing Saddam.  Severing the contacts was an added bonus and no doubt addressed as a beneficial outcome during campaign analysis.  It's no secret Iran stopped their uranium weaponization efforts shortly after we went into Iraq.  Here's a link to the Tehran Agreed Statement released 21 October 2003.  http://www.iaea.org/NewsCenter/Focus/IaeaIran/statement_iran21102003.shtml

Here's the full IAEA article - I'm going with this one.  The bold, underlined text is my emphasis.

In Focus : IAEA and Iran

Iran-EU Agreement on Nuclear Programme

14 November 2004

(As reported 14 November 2004 by Mehr News Agency)

The Government of the Islamic Republic of Iran and the Governments of France, Germany and the United Kingdom, with the support of the High Representative of the European Union (E3/EU), reaffirm the commitments in the Tehran Agreed Statement of 21 October 2003 and have decided to move forward, building on that agreement.

The E3/EU and Iran reaffirm their commitment to the NPT.

The E3/EU recognize Iran´s rights under the NPT exercised in conformity with its obligations under the Treaty, without discrimination.

Iran reaffirms that, in accordance with Article II of the NPT, it does not and will not seek to acquire nuclear weapons. It commits itself to full cooperation and transparency with the IAEA. Iran will continue to implement the Additional Protocol voluntarily pending ratification.

To build further confidence, Iran has decided, on a voluntary basis, to continue and extend its suspension to include all enrichment related and reprocessing activities, and specifically: the manufacture and import of gas centrifuges and their components; the assembly, installation, testing or operation of gas centrifuges; work to undertake any plutonium separation, or to construct or operate any plutonium separation installation; and all tests or production at any uranium conversion installation. The IAEA will be notified of this suspension and invited to verify and monitor it. The suspension will be implemented in time for the IAEA to confirm before the November Board that it has been put into effect. The suspension will be sustained while negotiations proceed on a mutually acceptable agreement on long-term arrangements.

The E3/EU recognize that this suspension is a voluntary confidence building measure and not a legal obligation.

Iran and the European Union reaffirm the commitments of they signed on October 21, 2003 and decided to move forward building on that agreement. High Representative of the European Union led by France, Britain and Germany recognize Iran`s rights under the Non-Proliferation Treaty (NPT) exercised in conformity with its obligations under the treaty without discrimination, part of the agreement signed in Tehran said.

Iran reaffirms that in accordance with Article II of the NPT, it does not and will not seek to acquire nuclear weapons. It commits itself to full cooperation and transparency with the International Atomic Energy Agency (IAEA), Iran will continue to implement the Additional Protocol voluntarily pending ratification.

"To build further confidence, Iran has decided, on a voluntary basis, to continue and extend its suspension to include all enrichment related and reprocessing activities, and specifically:

 

  • the manufacture and import of gas centrifuges and their components;
  • the assembly, installation, testing or operation of gas centrifuges; and
  • work to undertake any plutonium, separation, or to construct or operate any plutonium separation installation, and all tests or production at any uranium conversion installations.

 

The IAEA will be notified of this suspension and invited to verify and monitor it. The suspension will be implemented in time for the IAEA to confirm before the November Board that it has been put into effect. The suspension will be sustained while negotiations proceed on a mutually acceptable agreement on long-term arrangements," it said. "The E3/EU recognize that this suspension is a voluntary confidence building measure and not a legal obligation."

Sustaining the suspension, while negotiations on a long-term agreement are underway, will be essential for the continuation of the overall process. In the context of this suspension, the E3/EU and Iran have agreed to begin negotiations, with a view to reaching a mutually acceptable agreement on long-term arrangements. The agreement will provide objective guarantees that Iran`s nuclear program is exclusively for peaceful purposes. It will equally provide firm guarantees on nuclear, technological and economic cooperation and firm commitments on security issues.

A steering committee will meet to launch these negotiations in the first half of December 2004 and will set up working groups on political and security issues. The steering committee shall meet again within three months to receive progress reports from the working groups and to move ahead with projects and/or measures that can be implemented in advance of an overall agreement. "In the context of the present agreement and noting the progress that has been made in resolving outstanding issues, the E3/EU will henceforth support the Director General of IAEA Board as he considers appropriate in the framework of the implementation of Iran´s Safeguards Agreement and Additional Protocol."

"The E3/EU will support the IAEA Director General inviting Iran to join the Expert Group of Multilateral Approaches to the Nuclear Fuel Cycle," the agreement said. Once suspension has been verified, the negotiations with the EU on a Trade and Cooperation Agreement will resume. The E3/EU will actively support the opening of Iranian accession negotiations at the World Trade Organization (WTO).

Irrespective of progress on the nuclear use, the E3/EU and Iran confirm their determination to combat terrorism, including the activities of Al-Qaeda and other terrorist groups such as Mojahedin-e Khalq Organization (MeK). They also confirm their continued support for the political process aimed at establishing a constitutionally elected government in Iraq.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Is it possible for the dollar to collapse?

mainecooncat wrote:

This was the main reason for removing the administration of Saddam
Hussein in 2003. He was entering into long-term contracts with almost
exclusively Russian and Chinese companies and was attempting to price
those contracts in Euros. And for reasons that are logical and as plain
as day in the context of geopolitics and rule of force, his regime was
toppled.

If Saddam had succeeded in doing this he would have established what
many political theorists call "the threat of a successful example."
Undoubtedly, coupled with the fundamental long-term problems with the
US dollar, this would have caused others to do the same.

Good point. By the way, the "petro-dollar" was the brainchild of Henry Kissinger under Nixon. There are many who claim (Lindsey Williams for one) that in exchange for the petro-dollar (Saudis and others agreed to only accept US dollars), the US agreed not to develop it's own oil reserves. Instead, we buy off others, to help keep prices/profits up.

Rob Z's picture
Rob Z
Status: Bronze Member (Offline)
Joined: Nov 30 2008
Posts: 49
Re: Is it possible for the dollar to collapse?

I saw this report the other day on Bloomberg. Why would Geitner say such a thing about China? Is he crazy? What is the strategy here???

Jan. 22 (Bloomberg) -- "Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said the new U.S. administration believes China is “manipulating” its currency."

http://www.bloomberg.com/apps/news?pid=20601087&sid=apOnQzszPvts&refer=home

 

 

 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Is it possible for the dollar to collapse?

Talk about biting the hand that feeds.

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