Why The U.S. Dollar Will Collapse
The US Debt Crisis
The United States, a once prosperous country which was praised all around the globe as being the land of opportunities is now on the brink of bankruptcy with an ever increasing debt and a deficit which the US Congress is failing to reduce even as we are fast approaching what Federal Reserve Chairman Ben Bernanke called the "Fiscal Cliff". The U.S. government has been living way beyond its means:
- The government spends $1.5 billion more than what it takes in per day.
- The U.S. debt grew over 10% last year topping $16 trillion in September 2012, which amounts to over $52,000 for every American citizen and the figure keeps increasing exponentially.
- U.S. deficit spending tops $1 trillion for fourth consecutive year
- U.S. government unfunded liabilities have surpassed the $100 trillion mark.
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 to an historic low of 0.25% thereby depreciating the dollar by over 30%.
Both wars and the immigration issues continue to further increase the US debt. The cost of invading Iraq and Afghanistan now amount to over $3 trillion since the start in 2003 and keeps burning $12 billion a month. On top of that, immigration issues cost an estimated $300 billion per year.
With the tensions now going on between the US, Israel and Iran due to the uranium enrichment issue, a conflict scenario with the Arab country is now much more realistic and likely than it used to be a year ago and with people like Obama and Israeli PM Netanyahu in power it shouldn't come as a surprise if this scenario does unfold by the end of this year.
Both 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 such a scenario were to occur, the US economy would go bankrupt in a matter of months if not weeks in its current conditions.
The Chinese Threat: Dumping US Treasury Bonds
Here are some figures on China's Foreign Reserves:
- China holds $3.3 trillion in foreign reserves
- Reserves are accumulating at more than $20 billion per month
- China holds about $1.2 trillion in US Treasury Bonds
By looking at the above figures, it is easy to deduce that the Chinese government has an enormous leverage over the U.S. economy, showing the vulnerability of the American country. This also shows the horrible leadership of the present Administration which is not only causing the U.S. economy to weaken but is also downplaying the whole matter, stating that the risk of China selling US assets is absurd as it would result in mutual destruction.
After the sub-prime mortgage crisis, the Chinese Government hinted that it may sell its vast holdings in US Treasury 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 China's "Nuclear Option".
The dumping of such Treasuries would be 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 resulting in the American currency to collapse.
Is The U.S. Dollar About to Collapse?
On top of the geopolitical tensions, the Federal Reserve has once again enforced its loosening monetary policy by announcing a further round of quantitative easing, known as QE3 or QE open-ended, buying mortgage-backed securities to the sound of $40 billion a month and keeping interest rates low in order to encourage consumer spending.
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 within the next couple of years we are going to witness a hyper-inflationary collapse of the US Dollar and the Euro. This has been mentioned and discussed by many relevant figures in the economic world and is a plausible theory looking at the current trends being pushed by the world's central banks.
The best way to prepare for the coming crisis is to invest in precious metals, gold and silver above all, as well as agricultural commodities as these are solid, consistent assets that will rise in light of the central banks' loosening monetary policies.
Though Real Estate prices would fare better than currency, stocks or bonds, they still won't cope with the hyperinflationary pace. Instead, a good strategy would be to buy property with gold and silver which, during such a scenario, would be at an all-time high compared to all other asset classes.
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. You can also read my other article on China's monetary policy strategy:
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