The gradual and systematic erosion of the U.S. dollar’s status as the world’s reserve currency has been greatly accelerated of late. America arrived at this condition because the US central bank has compelled the nation to rely on asset bubbles for growth and prevented the deleveraging of the economy by forcing down interest rates far below a market-based level. The real problems are government largess, money printing, artificial interest rates, asset bubbles and out-of-control debt. What is disturbing is that they have not been addressed at all.
So will the US Dollar finally and completely collapse? Before we get into that, let’s start from the beginning first.
The dollar became the world’s reserve currency when US President Nixon abandoned the gold standard in the 1970s. The dollar is used for 43% of all cross-border transactions. The dollar’s value is strong as measured by central bank reserves — 61% of the these foreign currency reserves are in dollars. Today, America and the world is paying for that mistake.
A dollar collapse is when the value of the US dollar falls so fast that all those who hold dollars panic, and sell them at any cost. Sellers would include: foreign governments (like China and Japan) who hold large amounts of US Treasuries , traders in exchange rate futures who trade the dollar versus other currencies, and investors who will switch to assets like gold and silver. The collapse of the dollar means that everyone is trying to sell their US dollars and dollar-denominated assets, and no one wants to buy them, driving the value of the dollar down to near zero, hence a collapse.
What or who would cause the dollar to collapse? Would China and Japan ever really do this? Only if they saw their holdings declining in value too fast AND they had another market to sell their products to. Ironically, the economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, their products will cost more in the U.S., and their economies will eventually suffer. So right now, it’s still in their best interest to hold onto their dollar reserves.
However, China and Japan are selling more and more to other Asian countries, who are gradually becoming wealthier. However, the U.S. is still the best market in the world. Washington, on the other hand, has merely agreed to perpetually extend its lines of credit and to have the central bank purchase most of that new debt.
Instead of placating the fears of foreign creditors, the US government has done quite the opposite. Do they know something that the public don’t? Are they planning something in the near future? Something big?
So back to the question: Will the US Dollar collapse? There are many professional arguments from experts and analysts that are for and against the collapse of the US dollar. As Christians, how about listening to God’s prophets? Doesn’t it say in the Bible: Believe in His prophets and you will prosper?
If they are accurate, then the eventual and inevitable loss of confidence in the world system will ensure nothing less than surging prices and a complete collapse of not just the US dollar, but the US economy as a whole. And that is going to affect the global economy. What would you do if you knew what is going to happen?