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Frequently asked questions: do we all loose if the Dollar crashes?

Posted October 17, 2008

Q. Just one more thought, everyone seems to be predicting that the dollar will collapse but no-one seems to ask himself the question in whose interest this is. Let's look at the Chinese , they have tremendous reserves of dollars , so for sure if the dollar collapse , they loose everything as well. The same thing can be said of the rich Oil producing countries (especially Saudis, Emirates).

So the US might get support from those countries as well because it's in their own interest. So I'm wondering if the dollar could not perform better than one might think just because the big and very rich countries keep each other in balance because of mutual interests.

So what about the Chinese and the Arabs ?

 

A. The Financial System of the Western world is based on Fractional Reserve banking and Fiat paper money. Because of the Credit Crunch which is the result of the banking system and paper money, we have a recession and will probably also see a depression (2009/10)..

In a recession and depression Government income falls (less tax income) and expenditures rise ( i.e. more unemployment). Especially now Social Security,  Pensions and similar expenditures will soar because of the retiring baby boomers.

As we enter a recession and depression, the Authorities will start to print more money to keep the economy and financial system going.  This action inflates the value of the Fiat paper money (monetary inflation); the holders of the currency  don't even need to sell it to loose in purchasing power. Monetary inflation generates price inflation and the purchasing power of ALL holders (incl. Chinese and Saudis) of the currency falls. Whether somebody wants it or not, the collapse cannot be avoided.

ALL realize Inflation is a deliberate policy and here to stay. Nobody wants to hold the paper money any more and it is exchanged against Real Assets at any price. The currency (Dollar) crashes and we have Hyperinflation.

In order to postpone the Hyperinflation cycle, authorities bring up the “threat of deflation” . These deflationary references are merely cleverly crafted misdirections though, designed to distract investors from the real inflationary threat. 

The US is the world’s greatest debtor. Money printing will bring on monetary inflation, which will wipe out those debts, savings, as well as the US dollar. That is the real scare that markets today, as well as foreign creditors, should be pricing in. It is only a matter of time. To borrow a line from the classic film ‘The Usual Suspects’: The greatest trick the Devil ever pulled was convincing the world he didn't exist.

 

 

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