How an Economy Collapses

[barnaby33]

All fiat currencies die. Then again all currencies die, so fiat is just a subset. The USD will die. Its just a matter of when. The problem is that economic empires collapse from the outside in and the US is the center hub. The dollars death knell won't arrive until after the Euro/Yen/Pound and yes even the Yuan are all crushed first.

Confusing the US fiscal profligacy with other nations is a mistake for a couple of key reasons. We still do have the worlds reserve currency. Notice all the kvetching about the dollar vs the peso? Nobody in the US worries about the exchange rate of dollars on a day to day basis unless they are a currency trader. Second the US is still the worlds, "consumer of last resort." This is changing, but not as fast as people crowing about the end of the dollar would have you believe. Third and I believe more important, the US is undergoing a massive deleveraging in credit, and there is a huge difference between credit (promise to pay) and currency ability to pay.

 

[Matt84]

even fiat currencies are backed by something. The Franc is backed up to 40% in metal and by the longest history of contract keeping a country and its citizens can keep.
The yuan by the red army.
I don't know by what contraptions the Euro is sustained, and, finally, centrally,
How is the American Dollar backed?

Wat before Nixon had to do away with the last remnants vof the gold standard, people argued whether the Dollar had to be backed by either gold or silver with the same animosity as now we argue about fiat currencies and the FED.

You may define a mass delusion; you cannot explain it really. It is a malady of the imagination, incurable by reason, that apparently must run its course. If it does not lead people to self-destruction in a wild dilemma between two symbols of faith it will yield at last to the facts of experience.

Once the peace of the world was shattered by this absurd question: Was the male or the female faculty the first cause of the universe?

There was no answer, for man himself had invented the riddle; nevertheless what one believed about it was more important than life, happiness, or civilization.

Proponents of the male principle adopted the color white. Worshippers of the female principle took for their sign and symbol the color red, inclining to yellow. Under these two banners there took place a religious warfare which involved all mankind, dispersed, submerged, and destroyed whole races of people and covered Asia, Africa, and Europe with tragic ruins. Then someone accidentally thought of a third principle which reconciled those two and human sanity was restored on earth. All this is now forgotten.

Since then people have been mad together about a number of things — God, tulips, witches, definitions, alchemy, and vanities of precept. In 1894 they were mad about money — not about the use, possession and distribution of it, but as to the color of it, whether it should be silver — that is to say, white like the symbol of those old worshippers of the masculine faculty, or gold — that is, red inclining to yellow, as was the symbol of those who in the dimness of human history adored the feminine faculty.

Garet Garrett , - The Driver

 

[Ries]

"all fiat currencies die"?

leaving aside the fact that they are not alive in the first place, which, exactly, have "died"?

I mean, sure, a lot of european currencies were phased out and replaced with the Euro, but thats not exactly "death", and it sure didnt cause collapse in any of the countries affected- in fact, a strong case could be made that the Drachma would have gone way way down years ago if the Euro had not been adopted, so, in that case, the Euro breathed new life into the greeks.

But the dollar is 200+ years old, and hasnt "died" yet, although, like any currency, it has its ups and downs in terms of foreign exchange rates.

I suppose you could say the Zimbabwean dollar has "died"- but most european currencies, along with the yen, the won, and the other currencies of the first world are healthy enough, and havent "died".
The yen seemed to survive an atom bomb or two, as I remember.

the whole obsession with "fiat" currencies is pretty wingnutty, in my book. You plays with the cards that are dealt you, and as long as currencies are recognized, I will use em. If I have to pay for things in apples or labor or moonshine, well, I can adapt to that, too, but it hasnt happened for any significant period of time, outside of warfare, in most of the world for 500 years or so.

 

[barnaby33]

Actually Ries, the USD has had 4 distinct iterations, it has died several times. Ever heard of a continental? Then there was the bi-metal dollar (gold and silver) then the gold standard dollar, and finally the fiat dollar introduced in phases.

You do raise a good point, the word "die" has many meanings. The one I'm implying is that the USD will lose its status first as a store of wealth and finally as a medium of exchange.

When I said all currencies die, I was implying that every economy that has ever existed and created a currency has ended up dying or morphing into something else with a new currency. We don't confuse the Roman economy with the Italian, even though for 2000 years people have lived where the Roman empire was and even used gold backed currency.

I've no obsession with fiat currencies in themselves, merely the machinations that my govt has gone through to prop up the perception of value of a currency and which by extension is the cause of our current plight! I don't disagree with your last paragraph at all.

 

[Ries]

well, if the US dollar has died 4 times, and the US is still the largest economy in the world, than life after death cant be too bad.

Currently, US dollars in the paper form are usable almost anywhere in the world, even if not always legally.
Huge swaths of Russia, the middle east, and even Latin America use them daily.

And US dollars in the virtual form are still the main investment location for the wealthy of the world- presumably the ones who would have the best economic advisers- and yet they still sink billions daily into US dollars in forex, Billions weekly into US dollars in bonds and T Bills, and Billions yearly into US real estate, factories, and businesses. Not to mention all the US products they buy- $1.3 Trillion last year.

So, while death may happen eventually, I am not losing any sleep over it right now. I still make my money in dollars, and will for the foreseeable future.

on a related note- if the Chinese are going to take over the world, why do they all want to move to the States?
60% of the wealthiest Chinese want to immigrate, and the number one destination of choice is the USA-
http://www.chinadaily.com.cn/usa/business/2011-11/03/content_14028392.htm?bsh_bid=33760154

 

[PhilipDT]

Yeah, I'm not too worried about the USD dying anytime soon.

 

[mini]

Currencies go away and are replaced by others. That's the way of the world. Look at Brazil, when their economy tanked they went through a very interesting phase of introducing a virtual currency to recover and then to then the Real. In the 20th century Germany had 8 different currencies. One goes away and is replaced by another.

 

[barnaby33]

Reis, if we are going to keep agreeing then there is nothing to discuss. However I do think there are some real points to disagree on! I don't worry about the dollar dying immediately. That actually *might* be good thing.

What I worry about are the effects of depression on a generation of Americans that is coming of age in a much more resource constrained world than the last depression generation did. I'm also worried, like many here that inflation which is currently running at 10% at least in terms of food and fuel, is driving ever more Americans into destitution. Finally what I worry about isn't so much the death of the dollar, but of American economic hegemony. The American century won't really be over till oil is prohibitive, but our economic influence is certainly in decline. That is not a good thing. I love hearing Argentines rage on about how evil America is. They don't even know what evil is until they've seen what the Russians and Chinese do to subject people. We have been fucking boy scouts. I worry about a truly multi-polar world with no hegemonic power. Mostly I worry about my friends and family, like everyone else does and trying to see a clear and not grossly immoral path forward for them. What about you, what do you worry about?

As far as Chinese wanting to move to America that's nothing new. As long as America provides a better quality of life than China, for those affluent enough, it will always be a destination. However I'm curious if think of America as a blanket destination? I can assure you that they are not moving to Minot ND. They are moving to the gateway cities as have most waves of overseas immigrants.

 

[perry]

Too many people are not facing up the reality of the USA and it is in a deep depression at the moment that will only get worse soon. With
15 Trillion Dollars In Debt, 45 Million Americans On Food Stamps And Zero Solutions On The Horizon it does not look good !!

http://theeconomiccollapseblog.com/...food-stamps-and-zero-solutions-on-the-horizon

 

[jb5]

While the US is certainly struggling, the international press does not seem to cover stories about things like the boom going on in Silicon Valley. Companies are fighting for talent, many can't hire fast enough. SF has close to a 100% occupant rate for rentals. House prices in desirable areas have come back.

And in NYC it's back to business in the financial industry. Lots of hiring and good bonuses again.

These are the areas that lead recovery. The US is hardly out of the woods, but indicators are getting much stronger.