When will US$ collapse

Birdman has brought forward another post by a commenter regarding the timing of the Dollar’s collapse.

But first we need to understand what a ‘collapse’ means? I think a lot of people think of a dollar or government collapse as if it was a person. So all sorts of different images – such as one day, waking up and there is no bureaucracy … well, go back to sleep because that isn’t how a government or financial collapse is going to happen.

Government ‘collapse’ by reneging on their promises – Venezuela is a good example – the airlines are in do-do. They have about $600 million in USD in accounts waiting to be repatriated. Does the current devaluation apply to these already bought and sold tickets? If it does, it will probably wipe out more than a handful of airlines – but will Chavez let $300 million USD go to those nasty American capitalists? Promises, promises of government broken over and over again.

So that is what a collapse means – the government reneges on its deals and its promises.

So with the dollar – what does a dollar ‘collapse’ really mean then?

One, no one accepts it for payment. While in the US the legal tender laws will force acceptance, foreign countries might not accept the dollar. So what does that mean? No more trade of goods for dollars. Probably means a severe drop in trade between countries. Americans will have to make the stuff and buy it if from themselves.

But hasn’t there been a huge slow down in trade already? Hmmm….perhaps the dollar has collapsed already and we are living in the aftershock.

Or, the dollar goes into hyperinflation – which destroys the money in the United States too, as well as over the world. If that happens, you’ll die. Unless you have and know how to hitch a plow to a horse, you’ll probably die. Badly. So let’s hope this doesn’t happen.

But we must think of what a collapse means. It means the US government can’t pay its bills. It will still muddle on, the bureaucrats will still be there making your life hell.

Signs for “When it will collapse” (if it hasn’t already).

Gold And Dollar Decoupling

In the event that average Americans begin considering the use of gold and silver in place of the dollar, as in Vietnam, you know the final downturn has begun

I agree that Gold decoupling is a sure sign of the dollar collapse. And he is correct in noting that it has already shown signs of this.

But I do not agree about Americans using gold for payments. 99.5% of Americans don’t even know what a gold coin looks like close up. They’ve never even held one in their lives.

Americans will not start using gold or silver as replacement currency.

People in Europe and especially Asia are very aware of gold and are accustomed to using it for payments. Americans are not. The world may start using gold for local transactions but I doubt Americans will.

Price Inflation Of Oil

For a long time, oil has been traded on the world markets exclusively in U.S. Dollars. Oil and the dollar are therefore intimately connected. Oil will be the first commodity to reveal any inflation (or hyperinflation) in the dollar during a breakdown.

Absolutely. This is probably the #1 watch item – price of oil. Watch it creep up – a sure sign of inflation.

I suspect that this manipulation was not just an act of greed, but part of a larger strategy by the financial elite to acclimate Americans to the idea of gas price inflation, so that when it occurs again Americans will not be as quick to react, once again blaming speculators, instead of the real cause; a dollar implosion.

I hope he isn’t betting on this ‘suspicion’ of his. The oil economy is global – to think that it was manipulated on behalf of educating Americans is a bit egotistical.

There is no manipulation. The big run up was due to huge uncertainties in supply due to the machinations in the Middle East between Israel, USA,Russia, China, Iraq, Afghanistan, Palestine and Iran. These uncertainties still exist, however, the global melt down also relived pressure on oil prices. Huge inventories were built and ended up sitting idle in the ocean.

But watch oil — bubble bubble toil and trouble…

Dollar Loses World Reserve Currency Status

Anytime a pundit says the dollar will lose its reserve status, the next question you should ask is “What is replacing it?”.

Yen? Nope. Japan is economically moribund.  Yuan? Nope. China has restrictive currency controls. Euro? Nope. Its in more trouble than the Dollar.

There is nothing replacing it. No nation would put their country into a massive recession to turn their currency into the reserve.

The Dollar is the reserve currency and will stay that way – its all for one, and they’ll all fail the day the dollar fails. There is no safe haven for your currency in another currency.

The Federal Reserve is currently trying to stave off this event by purchasing U.S. debt; basically legalized currency manipulation, much like paying off one credit card bill with yet another credit card. According to reports, the Fed now accounts for 91% of all U.S. debt purchases. This is a very bad sign

If one thing seems to confuse people the most is the FED.

When the FED buys Treasury debt, it is NOT one credit card paying off another.

It is the money tree paying off the credit card – and there is a huge difference.

If it was mere debt that the FED was creating, it would have an asset that it sold or borrowed against to get the money. It doesn’t.  The FED sold nothing and borrows nothing. It makes it.

If it sold or borrowed, the money would have to come from somewhere. Thus, the monetary base would not change. Bob buying a car from me for $1000 move money from Bob to me. But the total money in the economy is still $1000. This is what happens when China buys Treasury debt. They get a T-bill, the US government gets the dollars, cash.

But the FED prints money that it used to buy Uncle Sam’s  debt for, say, $1000. There is now $1000 MORE money in the economy. This causes inflation.

The FED buying Treasury debt directly risks high and maybe hyperinflation. The monetary base has doubled in 18 months. From this, we would need to see over 100% inflation rate to correct it. It still needs correcting – but it will get much worse first.

Grocery Store Peculiarities

Wholesale prices of goods have recently been increasing far beyond what mainstream economists had predicted, hinting at the first steps towards inflation

Absolutely agree. Inflation hits where inventories get ‘turned’ the quickest – and food is #1.  Cars and fridges can stay on the docks for a very long time. Bananas get stale quickly. Food tends to rot, so it gets sold.

Keep careful records of your food purchases – this will be the sign inflation is within 6 months away. Food and fuel always show the sign first.

So, the when will it collapse? My guess, we’re already in it. Gold is decoupled, oil going up, trade going down, food going up, and deficits are rising.

Suggestions: If you are dependent on most or significant part of your income from government, start working very hard to change that dependency. You are already way behind. Soon, government will have to start reneging on its promises -Pensions and  Social Security will be delayed, payment cuts; Medicare et al will start seeing cuts and shortages and changing application rules; taxes will go up – way up – so become familiar with off-book gray market sources for income.

If you have elderly parents depending on pensions and social security, start now to prepare plans for them having to move home with you.

Anything that depends on government giving money is under severe risk of being cut or ended.

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14 Responses to “When will US$ collapse”

  1. Cyndi P Says:

    Hi Black Flag,

    Good post. I have a question for you. Way back, you mentioned something about negative interest being charged to banks to make them start lending, and that if negative interest come to pass, it could be the begininng of the end, so to speak. What is your postion as of now? I haven’t heard you mention negative interest in a while. Thanks…

    • Black Flag Says:

      Hi Cyndi!

      For 98% of the life of the FED, the banks Reserve Capital paid no interest.

      This is the cash capital of deposits placed at the FED to allow the banks to lend fractionally – currently the maximum is 9 to 1, but rarely do banks go that high (because a simple withdrawal of your deposit would immediately require capital infusion to the FED – which, they wouldn’t have because you are withdrawing that capital!) So they tend to hover between 5 to 7 / 1 to allow the occasional withdrawal of a depositor and not push the bank into insolvency.

      A couple of years ago the FED – in an attempt to control inflation without having to raise interest rates – had these choices.

      (1) increase the reserve requirements – that is, LOWER the fraction. But since banks were around 5 or 6 to 1, that would have had to be a BIG move – like greater than half (9 to 4) – to make any effect. That might have caused a bank run, massive insolvency and economic problems.

      (2) pay interest on EXCESS reserves. So the FED calculated the loans to the 9/1 and anything higher in deposit was paid a small interest rate – initially 1.2% now – 0.25% – this INFLUENCED the banks to increase their excess without having to lower the fraction.

      Well, economic crack-up and a recession hits – and banks are scared to death to lend into the marketplace – so they stack up on their reserves, earning a nominal interest rate.

      The government (doesn’t matter what shirt they are wearing) cannot survive politically inside a long recession – voters losing jobs tend to replace politicians with whomever promises the bigger fantasy.

      The government will force the FED to end the recession – when unemployment, bankruptcies and home losses cross some political line in the sand.

      Then the FED will have to push the banks to lend.

      Right now, though, the FED is sitting pretty. They flushed the market with money – scared to death of inflation – and were ready to yank it back (tossing the economy into a chaotic up/down/up/down whip motion).

      But the banks – on their own – has kept the money out of the economy.

      So the FED saved the big banks with cash (Goal #1) and didn’t cause inflation (accidental, but Goal #2) without having to resort to their manipulations.

      But it won’t last – the flower is starting to stink in Obama’s lapel. His numbers are falling faster than Nixon’s. He will force a hand at sometime.

      Probably after the FED chairmanship gets confirmed plus 90 days….

      • Kathy Says:

        FED Chairmanship confirmed yesterday……90 days and counting.

        I like these economic lessons the best! Thanks BF!

  2. G-Man Says:

    As always Mr. Flag, a very informative article. Your economic prowess is outstanding, and you explain it so it is easily understood. Kudo’s my friend!

    G!

  3. Birdman Says:

    Interesting article on China and a possible collapse:

    http://www.csmonitor.com/Commentary/Opinion/2010/0121/China-the-world-s-next-great-economic-crash

  4. Cyndi P Says:

    Thanks! It’ll be interesting to see if your time table is on the mark. You’ve done pretty well so far! Economically speaking, I haven’t had any surprises thanks to you.

  5. rightsaidfred Says:

  6. Cyndi P Says:

    Hi Black Flag,

    What’s your take on this?

    http://www.americanthinker.com/blog/2010/01/the_balance_of_power_shifts_to.html

    January 26, 2010
    The Balance of Power Shifts Toward China
    Steve McCann

    An unreported (in the once mainstream media) disclosure by China has taken the international financial world by shock and surprise. China declared that its foreign exchange reserves had increased to $2.4 Trillion in 2009, a gain of $453 Billion in one year. It is estimated that the reserves will rise by an equal amount in 2010.

    The significance of this astounding statistic cannot be underestimated.

    By comparison the total foreign exchange reserves of the European Union (27 countries) was $648 Billion in 2009. China’s one year increase alone was higher than the total reserves of all but one nation, Japan ($1.074 Trillion). (United States: $84.4 Billion)

    (The foreign exchange reserve is the total of a country’s gold holdings and convertible currencies held in its banks, plus special drawing rights and exchange reserve balances with the International Monetary Fund.)

    Two-thirds of China’s reserves are estimated to be held in dollars. Thus they are able, by mere threat of liquidating or dumping the dollar, able to hold the world economy hostage. China will not do so, as that would trigger a massive global economic collapse. But this leverage is sufficient to intimidate and cause other countries, such as the United States, to accede to Chinese demands, for example in foreign or military affairs.

    However, China is able to further position itself to dominate the world economy. At present the Chinese government is making massive investments in raw materials and advanced technology around the world. The ultimate aim: to hold the rest of the developed world hostage in acquiring the raw materials and technology necessary to foster economic growth. China will be in the position of dictating the price of commodities.

    That situation, combined with import restrictions and the manipulation of the Chinese currency, will allow the Chinese Government to continue this massive growth and potential world dominance.

    Meanwhile in the United States, there is an administration and Congress in place pursuing economic and spending policies which go hand-in-glove with the long term plans of the Chinese. It is either deliberate or done out of ignorance, as the Chinese are unabashed in making their intentions public.

    The shocking growth in the exchange reserves of China cannot be ignored.

  7. Sexy Lingerie Says:

    I’ve really enjoyed reading your articles. You obviously know what you are talking about! Your site is so easy to navigate too, I’ve bookmarked it in my favourites 😀

  8. cricut scrapbooking tool Says:

    Hello. This is kind of an “unconventional” question , but have other visitors asked you how get the menu bar to look like you’ve got it? I also have a blog and am really looking to alter around the theme, however am scared to death to mess with it for fear of the search engines punishing me. I am very new to all of this …so i am just not positive exactly how to try to to it all yet. I’ll just keep working on it one day at a time Thanks for any help you can offer here.

    • Black Flag Says:

      Hi Scrapbook,

      I guess it is one of the ‘skins’ of WordPress. I see you are on another blog site, so unfortunately, I do not know how to replicate that over there for you.

  9. we speak Says:

    we speak…

    […]When will US$ collapse « Freedom flies a Black Flag[…]…

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