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Fiat Currency Collapse

Politics / Fiat Currency Apr 02, 2013 - 06:34 PM GMT

By: Submissions


Lance Burnham writes: If all fiat currencies in history eventually collapse, how do we see it coming? Could it happen to the US dollar? How do you survive something like that?

America is the only real superpower, but in history superpowers do not collapse from outside forces, they collapse from within. One has to ask themselves, how could that happen, and are any of the signs there? I think spiralling debt, political dysfunction, economic malaise, income inequality, and participation in wars of great cost witout any apparent benefit are strong signs that all is not going well. Resorting to printing electronically money to attempt to mask how bad things are is a sign of desperation, not strength. Politically, the system is so polarized and dysfunctional now that there is no ability to find common purpose and plan things rationally. The country is essentially divided into two camps diametrically opposed with rigid inflexible ideology.

Neither side has ideology of any rational prudence or usefulness. Leadership is so thin, that history may well show Obama was not the guy for the job, but he sure does represent the something for nothing tilt of the monetary policy and society at large. The great danger as America slides from within, is who or what do they turn their firepower on out of angst, fear, frustration, or distraction. Anyone else notice an increase of rhetoric about North Korea, Syrian Chemical weapons, and Iran? The power of the US is so assymmetricaly great for now, that in a direct way its currency is unlikely to collapse. As the reserve currency, it is too powerful. As the most powerful country by a mile, it can bully, bluster, and export its problems all over the world. So imminent collapse is unlikely, and would be apocolyptical. As citizens and investors, then what does happen in the short to medium term? I think when an elephant gets sick and starts rolling around, it squishes the other animals. They export the currency collapse first to other countries. Japan, the Euro, China, all will become victims. Much of the Us economy is external now with its production all over world in low cost regions. Now they have to take payment in kind from a sick superpower who is willing to debt itself to the moon to take their stuff, and willing to just print more when that is no longer enough.

Essentially, the US will export its inflation, export its economic malaise, and export currency anarchy to other countries first. We have been taught that investing in Europe, Asia, BRICS, and all sorts of things are where to go, but they are first on the chopping block. Europe has imploded, the BRIC's are compromised, but China is going to be the next major problem. They are sophisticated manipulators of data, even better than the US, but signs of weakness and collapse are showing through (electricity, weaker growth etc.) Whatever statistic you see, discount it by some degrees, and assume that if they are allowing some weakness to show that it is quite bad. Inflation, exported by a currency devaluating superpower who does it because they can, is blossoming in China and the BRIC's. The US, has used its power to bully a rebound in the US of dubious real meaning or real economic activity. In the process, thay are distorting the economy of the world.

Eventually, the US fiat currency will collapse, but first will come collateral damage expressed in failures of currencies, sovereign debts, and economies throughout the world. Japan looks intent to follow the same path, but they are no more than a regional power and twice as debted. They will unravel quicker and in a messier fashion. China will probably implode concurrently form within, as the Asian economy falls apart, how do you satisfy a billion citizens? Europe will start to accelerate its implosion. The US will remain safe haven during this, until a point at which the interconnections of the global economy overwhelm the capacity to print and absorb. It all comes back to a collision between monetary policy, dysfunctional politics, debt bubbles, demograhic downshifting, and Keynsien policy gone wild. All accross the world, societies think that you can print, stimulate and paper over debt and economic failure without experiencing an cleansing and rebuild. By refusing to take corrections in economies, and markets we are setting up for the mother of all corrections, and I think it unfortuately very predictable, but not predictible in timing.

What to do? If you are from outside the US, by investing in dollars, and American markets you can probably survive the local collapses in the initial waves. Who in Cyprus wouldn't have rather had their assets in the dollar and S&P 500? But this will not last. Everyone can see the S&P 500 is on its terminal tear. No volume except in the first and last 5 minutes to march it up in a planned fashion. The S&P futures are ratcheted up every morning regardless of headlines, or earnings in a fashion that sure looked centrally planned. This is a pleasing thing for investors, but is dangerous as you can't fool mother nature forever and the longer you try the worse the outcome. I think all the average person can do is use this time to get your affairs in order. Reduce your debt, and payments, protect yourself as best you can from default personally, put your resources into real things such as silver dollars, real property that is not leveraged, food and security, and consider relocating to somewhere out of the way in the event of collapse. Better to be in a small town than a big city if services and order fail with a collapsing economy and currency as at least a local barter economy can happen. There will be few places to hide unfortunately.

Acquire a skill for yourself or a family member that is essential and useful in barter. Stockpile things of value or use in an emergency to trade. Does this sound extreme? The 2008 collapse was extreme, but the gambles that have been played in fiscal and monetary policy since to reflate the market to where it was are extreme and reckless beyond the original housing debt bubble. We have allowed the fed and government who engineered the original bubble and collapse to go back to the table and wager at least five times the bet on the same bubble/debt idea played out through different actors. Are the markets at new highs? Yes, but not in nominal terms, and total employment and income is no where close to 2008. When it collapses, as it will because it is based on the same flawed ideology and process,it will be larger by several degrees of magnitude. Could I, and others who think this way be very wrong? Absolutely, but to me it sure looks like a repeat of the 2008 collapse will replay again, led by collapsing debt all over the world unable to be repayed due to contacting economies. This time, we are all out of dry powder to stop a crisis it has all been spent. Fractional banking and fiat currency are only useful until confidence and belief are lost. If the greatest fiscal and monetary stimulous in the history of the world fails, as it appears to be doing in the real economy, then look out at that moment of recognition that it just dug ourselves deeper into the abyss without adressing the fundamental flaws that got us where we are. In spite of QE 1,2,3,4 nobody has asked the fundamental question of why thry have achieved so little if anything, and why they have had to lie and buy the way to a new stock market high,

By Lance Burnham DDS, avid reader of all things economic

© 2013 Copyright Lance Burnham - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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