U.S. Dollar Collapse 2009 | The Perfect Storm?

The idea of the U.S. dollar collapsing in the way it's being thought of today, would have been unheard of in times past. Sure, we've had times of steep inflation where it was dollar was devalued, but nothing like the perfect storm approaching us now.

We have everything from the many variables connected to the economy, foreign governments eyeing the dollar suspiciously for the first time, low interest rates, U.S. Treasury bonds about to burst, China slowly moving out of U.S. dollars (selling bonds), out of control government bailouts, more government bailouts, increased socialization of American economy, and finally, the misguided idea of the dollar printing presses running day and night to provide the money to deal with all of this.

This doesn't include the bloated budgets needed to handle the ongoing policies of FDR - which President Barack Obama foolishly has asserted he's going to continue and expand - like social security and medicare, which will skyrocket even more on a yearly basis as baby boomers swarm into their retirement years.

We have to understand the U.S. dollar can collapse in a number of ways, and it's not always obvious that it has, especially with its ultimate enemy: inflation. But there's no way inflation isn't going to come, as the promises and misguided policies of politicians hoping to hold on to their government positions, ensures the printing presses will continue to run, and also ensures the dollar will buy much less. This is the type of collapse that hides what's really happening and the cause, as most people don't understand the direct correlation between printing hoards of money and the consequential devaluing of the dollar ... or any currency for that matter.

The reason America's been able to get away with pushing the limits with this has primarily been the acquisition of U.S. Treasury bonds by China. China is now abandoning that strategy and moving its money elsewhere. That means with China no longer financing the U.S. economy, America will have to look for financing elsewhere. Where would that be, as no other country is going to buy up an asset like the U.S. dollar when it could be on the verge of collapse.

There is no other recourse for the Federal Reserve (in their minds) but to keep the printing presses running. It doesn't occur to government leaders that they have no power in these affairs, and the real answer should be to downsize government, along with its unrealistic programs it offers citizens to buy their votes and generate dependence upon them.

One unfortunate side effect of this is people could remain in the dark if they don't understand that printing money will weaken the dollar and push the prices of goods and services up. If they don't understand this, we'll be doomed to repeat the fiasco again and again, as we continue to follow the same strategies and make the same mistakes.

China Using Yuan instead of Dollars in Transactions

China has already said it will allow its yuan to be used internally for settlement in some of its riches provinces:

"China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China's two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

"Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.

"Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars..."

Putting the inevitable inflation scenario aside (which will happen, it's only a matter of degree) we could have a more robust slaughter of the dollar, based on the other numerous factors we've mentioned above.

If China decided to take drasic measures and sell a lot of their Treasurys, that would put tremendous downward pressure on the value of the dollar, while there's also the real possibility of OPEC, and others, deciding to get out of US securities as well, again, making America's only choice to print more money to pay off its debts and faulty social programs.

Another important part of the economic puzzle is that China has obviously been the primary provider of inexpensive goods to American consumers. So even though the U.S. has pressured China to increase the value of the yuan, the result would be higher prices of goods for Americans, which would end up causing even more pain. A perfect storm ending with the collapse of the U.S dollar?



Many financial and economic experts have told government officials they needed to stay out of the economy and just let things run their course. Past experience has shown that government interference makes things worse, not better, for the economy.

So will the U.S dollar collapse in 2009? It's a very real possibility. We have a perfect storm of variables that could together bring the dollar down to emerging markets status.

Jim Rogers: Most Large U.S. Banks Totally Bankrupt

Commenting on the health of U.S. banks, billionaire investor Jim Rogers said that most large banks in the U.S. are "totally bankrupt," and the attempt to fix them by the government is completely misguided.

Rogers said that the implementation of the $700 billion bailout does nothing to really fix the problem, it only rewards the poorly managed firms and keeps them in business while they should be allowed to fail.

For example, the bailout doesn't do anything to tackle the problem of how banks take care of their balance sheets; one of the key negative behaviors that poorly run banks practice.

All that the government is doing is rewarding the terrible management of these banks with an extended life, when in reality they need to be left to fail so the banks that are run well can either take them over or win their customers.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," said Rogers. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

With America now taking similar steps that led Japan to years of economic stagnation, Rogers also believes that will probably be the economic fate of America as well.

What happened with Japan is they also wouldn't allow their large financial institutions to fail, and now that President-elect Obama is asserting his economic idea is to focus on building up national infrastructure, it'll probably make it worse, as that's also the strategy Japan used to work itself out of a financial crisis they've never recovered from.

I remember Hillary Clinton mocking John McCain for saying at one time that he would do nothing to fix the economy. That is truly the role the government should play, yet that are in a stage of bailout addiction, and they can't keep away from attempting to gain political favor by passing around the taxpayers money.

As Rogers correctly asserts, the current actions will probably end up with America weakening for a long time into the future. All this because politicians can't admit there is nothing to do but ride this problem out.

History has shown that if what is called the Great Depression in America would have been left to itself, it only would have been a very short, temporary pain that would have been taken care of in a relatively short time, as previous recessions had proven.

That's the kind of courage we need today, to have polticians leave it alone and acknowledge they aren't a factor when it comes to the free market. Very few are willing to walk that wise path. The result will be Americans paying for it for years into the future.

U.S. Stock Surge Strengthens Dollar

Currency investors have temporarily taken their eyes off the fundamentals and are helping strengthen the U.S. dollar in response to government response to the credit crisis, as well as the upward moves of the stock market.

While it made no logical sense for the stock market to surge after the troubling news Thursday that mid-Atlantic factory output dropped to its lowest level in 18 years, still it did, and not only that, but the production in the industrial sector in the U.S. also fell to its lowest monthly drop since 1974.

For the most part the reason this is happening is the focus on governments around the world pouring capital into shoring up the credit crisis. This gives the illusion of safety, and for now people are buying into that illusion.

Once the focus comes back to fundamentals, we'll see the dollar soften again, as most of the banks see in the near term.

People have forgotten the real risks involved with the U.S. dollar, and are seeing it as a safe haven. That shouldn't last too long as reality sets back in. Another factor is they still assume the U.S. is the safest bet in times like these.

U.S. Treasuries and other liguid dollar instruments have been the main benefactors over the last few months.

Even the yen has fallen against the dollar in these times, dropping to its lowest level in 7 months.




Still, confidence in general is still low, and regardless of the government bailouts, credit is still hard to come by.

World Bankers Aiding in Flooding Markets with U.S. Dollars

In a big attempt to release liquidity into the market, the Federal Reserve is getting the help of the Swiss central bank, Bank of England and the ECB, as they are getting together to auction off unlimited dollar funds.

This is unique in history as past dollar swaps were always capped at a certain level. In this case funds auctioned will be unlimited.

Maturity dates for the funds will be offered for 7 days, 28 days, and 84 days for a fixed rate respectively.

These swaps have been one of the reasons the U.S. dollar has continued to strengthen in the last months.

The greenback fell today against the euro and pound, as well as a number of major Latin American currencies.

Today the Dow Jones Industrial Average rose by its highest one-day point total in history, gaining 936 points, to finish the session at 9387.61

Commodities will Remain U.S. Dollar Denominated - for now!

The fall of the U.S. dollar has generated the question of whether or not it will remain the currency used to price commodities. While that may happen someday, it's probably not going to be something that happens in the near future.

Assuming there'll be a huge $700 billion bailout package passed in the U.S., that could put huge pressure on the U.S. dollar, and who knows if it will hasten the process.

"At some point in history, all empires decline and at some point in history, the U.S. empire will decline," said Ian Morley, director at British-based fund manager Quantum.

"Until that happens, the world reserve currency, the world trading currency and the currency that all commodities are ultimately denominated in, is dollars."

The other obvious problem is what currency would replace it at this time and history, and there's no obvious answer.

Currencies like the yuan, British sterling or the rupee, aren't going to replace the dollar to price commodities, and neither will the euro, which is far too rigid to work.

One possibility would be the yen, which is already being used by some. Iran is using the yen as well as the euro for its oil trading. Some oil companies have been calling to do business with the euro also. But again, its rigidity leaves a lot to be desired and I don't see that being an overall answer.

The other problem for the euro is China would have to completely revamp its export policy toward Europe, something that won't be desirable for them at all.

So while there is definitely the beginning of rumblings to change from dollar-denominated commodities, until a viable alternative is offered we'll see business as usual in that regard.

Again, the process may be speeded up if the bailout package is passed and the dollar continues to take a beating from more fiat money being pumped into the economy.

This will pressure revenue and profit margins for commodity companies and countries, and could bring about the inevitable change quicker.

Is the U.S. Dollar on the Verge of Collapse?

The government bailout could have a significant impact on the value of the U.S. dollar going ahead.

Politicians continue to be clueless as to why this is happening and what to do about it.