The Coming Collapse of the U.S. Economic System — Blame the U.S. Dollar
In my own opinion, the greatest threat the United States faces in the 21st century is not Russia, China, Iran, or Climate Change; but rather, the reckless monetary and fiscal policies of the United States.
Should the U.S. Dollar collapses, it will be the single most substantial affair in human history. No money in human account has ever had an extraordinary impact globally as the U.S. Dollar. All other currency crises have been regional in nature, and there were other currencies for people to use. A U.S. Dollar collapse would be global, and it will bring down all other fiat currencies.
History is filled with sudden currency collapses. Venezuela, Zimbabwe, Argentina, and Weimar Republic-Germany have each experienced awful currency crises since the 1900s. The cause any currency collapse is usually the lack of faith in the stability of the currency for trade and exchange.
As soon as users stop believing that a currency is useful, due to inflation and low growth, that currency is in serious trouble.
The Strength of the U.S. Dollar
Since the Bretton Woods Agreement in 1944, governments and central banks have relied heavily on the U.S. dollar to support the value of their currencies. As a reserve currency status, the U.S. dollar receives extraordinary acceptability in international trade. However, the U.S. Dollar is not the only reserve currency in the world. The British pound sterling, Euro, Japanese yen and Chinese yuan are also members of the reserve currency club. The rationale for the U.S Dollar to have competitors is to it create alternatives in the event the U.S. Dollar collapses, and for the global economy to continue humming along.
The Weakness of the U.S. Dollar
The weakness of the US dollar is primarily that it is a fiat currency just like every other major global currencies. Without the discipline of the gold standard, governments print too much money for political purposes.
If the US Federal Reserve prints too much Dollars, the value of the currency will fall. Fortunately, apart from the United States, nearly all the reserve currency implement similar monetary policies like the United States.
Will the U.S. Dollar Collapse?
The question isn’t if the U.S. Dollar will collapse… but rather, when.
What would cause a U.S. economic collapse? The United States cannot sustain the national debt that it got at $22 trillion. As the national debt continues to increase, interest rates must go up as well.
If America’s debt is soo massive, why hasn’t it collapsed yet? The answer is simple: Major economies like Japan, China, and the European Union still invest in the US economy. Also, the U.S. accurately pays off its bonds worth trillions of dollars a year.
Events that could trigger the U.S. Dollar collapse
First of all, the Federal Reserve starts to print too much paper money to pay for politicians’ spending program (Social security, Medicare, defense spending, debt servicing) creating hyperinflation in the United States.
Next, China implements its nuclear option to dump its U.S. Treasuries holdings. China is the world’s biggest U.S. Treasury investor, owning over $1.12 trillion. By continuously purchasing U.S treasuries, it keeps borrowing costs very low for U.S. companies and government. By dumping its treasury holdings, bond yields would increase, and interest rates will rise, making it very expensive for the U.S. government and companies to borrow fund their operations, budget deficits, and savings shortfalls. To avoid this problem, the Federal Reserve has been stepping in to buy U.S. Treasury bonds. It may not be in China’s interest to dump its U.S treasuries; but it definitely has the power to do it. If China does, other US debt holding countries could also dump their U.S. debt holdings, causing panic.
Another possible scenario is that OPEC oil producers suddenly decline to sell its oil in US Dollars. This could result in an absolute loss of confidence in the US dollar, causing the Petrodollar system to collapse. The Petrodollar system is an exchange of crude oil for U.S. dollars between exporters and Importers. All leading indices and futures like the West Texas Intermediate (WTI), North Sea Brent (Brent), and Canadian Crude Index are denominated in U.S. Dollars.
Faced with stag inflation, massive debt from the Vietnam War, massive balance of payments deficit, and excessive domestic spending habits; the U.S., in 1971, ended the Gold standard for the U.S. dollars. By 1974, the U.S. was able to influence Saudi Arabia to encourage other OPEC members to normalize their oil sales in U.S. Dollars. In return, Saudi Arabia and other Gulf states secured U.S. military assistance & protection during an increasingly volatile political climate in the region that saw the Iran-Iraq War, and the Soviet invasion of Afghanistan. As such, the Petrodollar system was born.
The petrodollar helped lift the U.S. Dollar to the world’s leading currency. Every country that wishes to import crude oil needs the U.S. Dollars to purchase the commodity. This means that foreign countries have to hold large amounts of U.S dollars.
However, they have been recent challenges to the Petrodollar system. With the decline in purchasing power of the U.S. Dollar, China, in March 2018, launched Yuan-denominated crude oil futures denominated in CNY (Petro-Yuan) for oil marketing for the Far East. As the world’s biggest importer of crude oil, Beijing has long felt that pricing all its millions of barrels of imports should be priced in Yuan. As the world’s largest importer of crude oil, China saw it as a reasonable change to price the world’s most vital commodity.
What Would Happen in an Economic Collapse
Modern economies are built mostly on faith. People have confidence in the U.S. Dollar because the U.S. economy is the biggest and most significant economy in the world. Also, the U.S. economy frequently outperforms the economies of Europe and Japan. The US dollar is backed up by the output of American workers. When people do lose faith in the U.S Dollar, its value will plunge, the stock market will crash, and the U.S economy will collapse.
The U.S. National Debt is over $22 Trillion. However, the total the US total debt (debt owed by state & local governments, Household, businesses, financial institution, and the Federal Government) is a staggering $74 Trillion.
The point I’m making is that this charade cannot continue much longer. China, the European Union, India, Brazil, Russia, and other major economies are very aware of this coming crisis. It’s hard to imagine the U.S Dollar being replaced by another currency as the world’s economic standard, but it could very well happen. It is possible to wake up one morning and see the U.S dollar slide into a death spiral, stocks in a free fall, and hyperinflation.
If the U.S. Dollar and the economy collapses, the result will be the most significant stock market crash ever in the New York Stock Exchange, probably 1000–2000 points in the first day. Thus, the major stock exchange in London, Frankfurt, Tokyo, and Hong Kong will have to suspend trading. Of course, this suspension will significantly increase the panic among the general population.
Once people all over the world realize that they are a significant stock market crash happening, there will be a run on banks similar to the 1930s. In response, major financial institutions will put a freeze on most or all banking transactions, including credit card transactions. This will significantly increase panic.
Due to the bank freeze, employers will be unable to make bank transactions to pay their employees. With employers unable to access frozen bank accounts, people won’t be paid, bills won’t get paid, etc. Consequently, most businesses will be forced to either go out of business or significantly reduce their workforce; unemployment will become rampant.
With millions out of a job, the number of unemployment claims will skyrocket, bankrupting unemployment insurance programs in the major countries.
When people realize that the value of their hard earned wealth is about to evaporate, they will take drastic measures to prevent it. Those who own stores and businesses will increase their prices for goods and services drastically to survive the crisis. Panic hoarding of food, medical supplies, gasoline, heating oil, and other commodities will erupt. Runaway inflation, gas lines, and rationing will begin.
Widespread violence will explode across America. That could range from inner-city riots or gang wars. The breakdown of law and order will be the ultimate effect of rioting and looting, as they lose all their sense of right and wrong and are increasingly empowered in their sense of anger, panic, and greed. Major social upheaval will occur in America, and the fear of the unknown will set in amongst the populace.
The U.S. will be hardest hit because it has the largest economy, an enormous national debt, an economy based on credit, and a population greatly divided by race, ethnic origin, gender, color, religious beliefs, cultural differences, and financial status.