Why The Dollar Will Collapse!

The U.S. government is living way beyond its' means:

• The government spends $1-1.5 billion more than what it takes in per day.
• The U.S. debt grew 9.5% last year surpassing $9 trillion at the end of 2007, about $30,000 for every american, and the figure keeps increasing exponentially.
• U.S. government liabilities have surpassed $50 trillion.

After the sub-prime mortgage crisis, which hit not just the US but the whole world, the Federal Reserve was forced to cut interest rates several times depriciating the dollar by about 25%.

Both the war in Iraq and immigration issues continue to further increase the US debt:

• Cost of war in Iraq amounts to $3 trillion since the start in 2003 and keeps burning $12 billion a month.
• Immigration problems cost an estimated $300 billion per year.

With the tensions now going on between the US and Iran due to the nuclear issue, a war scenario with the muslim country is now much more realistic and likely than it used to be a year ago and with people such as Bush and Dick Cheney in power it wouldn't surprise me if this scenario did occur. Even Obama and Hillary Clinton have mentioned the issue of Iran during their campaigns with the latter even willing to obliterate the country if they were to attack Israel, not to mention the US.

If this were really going to occur, the US economy would go bankrupt in a matter of a few months if not weeks in its' current conditions.

With the Federal Reserve keeping interest rates really low while printing billions and billions of dollars in order to provide more liquidity to the banks, it is very likely that in no more than September this year (2008) we will witness a hyper-inflationary collapse of the Dollar. This has been mentioned and discussed by many relevant figures in the economic world and is a plausible theory considering the current trend in the market and economy.

[Update - 17/06/08]

Chinese Threat - Dumping US Treasury Bonds

Here are some figures on Chinas Foreign Reserves:

• China holds $1.7 trillion in foreign reserves (April 2008)
• Reserves are accumulating with more than $20 billion per month
• China holds about $450 in US Treasury Bonds (rough estimate)

By just looking at these figures it is easy to deduce that the Chinese government have an enormous leverage over the US economy , showing the vulnerability of the American country. This also shows the horrible leadership of this Administration which not only is causing the US economy to collapse but has been also downplaying the whlole matter, stating that the risk of China selling US assets is absurd.

After the sub-prime mortgage crisis, the Chinese Government hinted that it may sell its' vast holdings in US Tresury Bonds, which could potentially trigger the collapse of the dollar, if Washington were to impose sanctions to force an evaluation of the chinese currency, the yuan. Officials from China said that they would be using their large foreign reserve as a political weapon to counter pressure from the US Government. Some went as far as to call this "weapon" Chinas "Nuclear Option".

The dumping of such Treasuries would result devastating to the US economy, slamming the dollar and driving up interest rates. It basically means that the dollar will collapse. Of course China is also co-dependent with the US as it needs America as a market to sell its' vast amounts of goods which it produces. Thus this "nuclear option" seems unlikely at the moment although a further depreciation of the dollar would force China to sell at least part of its' US Treasury Bonds, if not all of it, resulting in the dollar to collapse.

Will The Dollar Collapse?

At this point it seems pretty certain that the US is facing an inflationary depression. The worst thing is that this is actually being done on purpose, by design so to speak. The Federal Reserve seems to prefer saving the banking cartel rather than helping the american citizens.

It is likely that we will witness a domino collapse in the U.S. financial system in the next few months and I tell you, things are going to get really ugly. The best way to defend against the coming crisis is to buy gold and silver as these are the only solid, consistent currencies that never devaluate, along with oil and drugs, but this is a different matter.

Please do comment, I'm eager to read your answers and views on this really important and delicate topic, which is going to affect the whole world.