The Decline of the Dollar



Aug 2, 2020
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In this post, I'll give you an outline of how currencies collapse and how that outline pertains to the U.S. dollar. After that, I'll throw in some conjecture, simply because I can't let a narrative stand without question of skepticism.

Okay, this is how it happens. This is how a nation destroys their currency. Keep in mind that in order for a nation to develop a currency in the first place, it needs to have something of value to back it. It's almost like a loan to the populace. A group of people who live in an area of land can't simply make a currency out of nothing. No other nation, and probably no one inside the nation, would take it seriously. What's it worth and why is it worth something, they'd ask. That answer better have something to do with collateral. If huge investors called a nation on their bogus currency and wanted something of actual value, what could they take? That's the collateral I'm referring to. If nothing is there, investors won't invest.

So, in general, this is how these things play out:

1. A nation, nations, or group of people initiate a currency that's of value itself or backed by something of value. It doesn't necessarily need to be backed by gold and silver, but that would be nice (and transportable). The reason for the backing is the collateral I referred to above as well as a limit to the amount of fiat currency that can be produced.

2. As the area develops, it decides to, for whatever reason, offer layers of entitlements and welfare programs to its citizens. When you see a once proud and vibrant nation begin social programs such as welfare and universal health care, understand that it's in the second stage of destroying their currency. What's worse is that most nations don't even print their own currencies. Their central banks do, which aren't even part of the government.

3. Because of the expanded economy of the nation or nations in question, the military grows as well. The military is the ultimate in social programs as it sucks up the most money.

4. Once the military is large and powerful enough, wars begin. That's when the money printing and debt really begin. When you see a nation starting wars to expand their sphere of influence, understand that the nation in question is in stage four of destroying their currency.

5. As the wars continue, the money printing and debt continues as well, driving up the amount of currency that's in circulation. Essentially, what's happening is that every additional piece of currency that's printed destroys the value of what's already in people's hands.

6. When the printing hits a certain point and people begin to feel the effects of the devaluation and inflation, the populace and the investor class loses faith in the currency altogether.

7. Because of this loss of faith, most people don't want to trade with the currency at all. Or, they still want to trade with it until it's all gone out of their hands. What they buy with their dying currency is usually things of real value, such as hard assets (land, oil, gold, silver). And once the process of getting rid of as much currency as possible is complete, the currency collapses and the transfer of wealth would have been finished. Losers lose big and winners win big.

I'd say we're all rather complacent to the effects of inflation here in the United States. It's generally not something we need to concern ourselves with because we haven't felt any dramatic effects of it for decades. Actually, the last time I can remember experiencing big inflation was the 70s into the 80s and then some minor inflation during the turn of the century. You can always tell when there's inflation by looking at the interest rates banks are willing to pay. Or, the interest rates you have to pay on loans. Back in the early 80s, people were paying 16% on mortgages. And in the year 2000, I was getting 7.5% on some CDs I owned. We haven't seen those types of numbers in years, so we don't think about this type of thing very often. Keep your eye on the government though. Have they released any big chunks of stimulus lately? Have businesses been hoarding their cash? Actually, big multinational corporations have been hoarding cash for over a decade and just recently, the U.S. has offered gigantic stimulus packages to anyone and everyone who will take the money. I wonder what type of effect those two things will have once inflation begins to kick in. Remember, when people and businesses sense inflation, they begin to spend to get rid of their money, which only exacerbates the problem. Eventually, it'll all be gone and we'll be wondering why we didn't pay more attention to this type of thing more in the past.

The number one area of concern regarding any election should be financial prudence. If you ever hear a politician tell you that they are going to spend money on this or that, or on you, for that matter, show them the door. Nothing else matters in politics. Only financial policy. All else rests upon a healthy and functional government. Not a soul on earth will care much about social issues or someone else's rights if they're starving to death. Trust me.

Up next, I'll talk about the gold standard and the Fed.

PS - I almost forgot my conjecture. Basically, I wanted to say that in order for a currency to collapse, people and business need to spend all the currency they have, which will really get the ball rolling. My question is, what if the population doesn't actually have any money? What if a nation's people are so in debt, they've got nothing to spend? Have the banks figured it out? Have they figured out how to avoid hyperinflation? Simply figure out a way for most people to live off of credit, thereby avoiding the spending frenzy that usually precedes the crash? I wonder, because the U.S. is a very indebted nation. Most people couldn't spend money if they wanted to. It's an interesting thought.

This post is part of a series: Guide to Investing in Gold & Silver by Michael Maloney
The Decline of the Dollar was posted on 06-03-2021 by CaptainDan in the Economics Forum forum.

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