Why the dollar is going to collapse.

We've all seen a lot of articles about the impending collapse of the dollar. Sometimes these articles quote people who have a very good track record; sometimes they report idle rumors of rumblings coming from the State Department; and sometimes they quote crackpots on the lunatic fringe. What they usually don't do, is explain WHY this is such a common concern, and whether or not it's valid.

Recently, one blogger went ahead an enlightened those of us who don't have the time to watch the charts released by the Federal Reserve.

As it turns out, our dollar supply has doubled in the past year, as shown in this chart:

[atsimg]http://files.abovetopsecret.com/images/member/67db6a01f039.png[/atsimg]

Okay, so why are we so worried about deflation, when doubling our monetary base should cause massive inflation? It turns out that this money is being stored in excess reserve accounts at the Fed:

[atsimg]http://files.abovetopsecret.com/images/member/94ef1f79af2c.png[/atsimg]

The previously mentioned blogger (Jack Maturin) goes onto explain that banks don't normally just park their money at the Fed, they lend it out and "the fractional reserve system then multiplies out to fill the economy with fiduciary media. When each of those dollars in 'excess reserves' finally makes it out into the economy, each one will multiply itself ten times, to fill the wallets of America with untold fiduciary media. The $800 billion dollars in 'excess reserves' will become $8 trillion dollars in paper folding money (or its electronic equivalent)." $8 Trillion? Uh oh.

Banks are opting to park their money due to the zero percent interest rates. Eventually, interest rates will rise slightly and the banks will respond by pulling their money out and lending it, flooding the market with US Dollars. Maturin envisions three possible scenarios at this point:

1). Massive stagflation (Hyper Depression) - if Ben shoves up interest rates massively to prevent people wanting borrowed dollars, to combat the deluge. American industry and housing will collapse under such interest rate pressure.

2). Massive inflation (Hyper Inflation) - if Ben keeps interest rates down to avoid immediate economic collapse. All the debtors, the majority of voters, will be overjoyed. Until they see what hyper inflation does to an economy, after a couple of years.

3). Complete full U.S. economic recovery. Ha! :-)

The first two outcomes aren't good, but there is one thing that the third option has going for it: recent changes in the law which allows the Federal Reserve to pay interest on these reserves, thereby giving the banks incentive to keep their reserves parked at the Fed, rather than lending them out.

So; the situation looks bad and it's up to the Fed to use their new powers to keep things under control.

"In Ben We Trust."

[edit on 2-8-2009 by theWCH]

I think we're going to see Hyper Inflation, but it won't be soon. I think the fed will keep interest right where it is for a bit longer.

S&F for you.

Your scenario covers some of the issues - however, the government has to pay its debt.

It does this with treasuriesd - no treasury sales = no repayment of debt = insolvent US .. unless you think income from taxation is going to cover $1.8 trillion this year?

There's some fairly solid eveidence that the Fed is sending money over seas into other central banks, and having them pretend they want treasuries - in fact actually buying them for the Fed.

WHen the treasury dept. normally sells treasuries - it has a nuetral effect on inflation - it takes in dollars from the treasury sale, then spends them - no net efect.

If the Fed is buying the treasuries - it must use freshly printed money to do so - 100% inflationary.

It appears that this is currently happening - if so - then the Fed has no tols to use to prevent inflation, unles demand for treasuries improves - but how can it when they are destroying the value of the dollar?

Inlfation has already begun - the more debt must be serviced by the Fed buying treasuries - the less demand for them - the more inlfation - etc etc.

Originally posted by Sundancer
I think we're going to see Hyper Inflation, but it won't be soon. I think the fed will keep interest right where it is for a bit longer.

S&F for you.

I think that the second scenario outlines above -- massive inflation, to the initial joy of debtors (voters) -- will happen for political reasons, in a year or two. If Obama's popularity continues it's free-fall (which I'm 50/50 on whether or not it will continue it's decline) then he's going to need some political capital if he wants to win re-election. I see the conversation going something like this: "Hey Ben, if you want to be re-appointed, then you'd better pump some liquidity into the markets!" If Ben doesn't comply, then somebody else will be willing to. Then it's a matter of having a sound exit strategy and not screwing it up.

This article from Financial Times talks about the "exit strategy" issue.

As economies stabilise and recover, central banks will face the same challenge the Fed faced in the mid-1930s: when and how to reduce monetary accommodation and prevent the large accumulation of bank reserves on its balance sheet from being lent out, causing an inflationary expansion of money and credit. A fundamental misjudgment by the Fed was to assume that, as the economy revived, banks would manage liquidity exactly as they had prior to the banking crises earlier in the decade and hold only the legally required minimum. When the Fed sharply increased reserve requirements in 1936 and 1937 (see chart 1), banks responded by calling in loans to build a liquidity cushion above legal requirements, thereby sharply contracting money, credit and economic activity.

Just last autumn, Congress gave the Fed a new tool that will play a crucial role as it exits from its unusually accommodative monetary policy: the ability to pay interest on reserves. Previously, a recovery would mean more opportunities for banks to lend and so they would draw down non-interest-bearing reserves and expand credit and hence the money supply. Interest on reserves, however, can cut that logic short by providing incentives for banks to hold reserve balances rather than lend them out, as the Federal funds rate target rises. The Fed now has a greater control over the reserve choices of banks because it can raise the return on reserves relative to banks’ lending opportunities, and thereby better manage credit and money growth in a recovery. In addition, of course, the central bank can drain reserves directly from the system through reverse purchase agreements and the sale of long-term securities from its portfolio, among other means. The ability to pay interest on reserves also allows the Fed to offer term deposits to the banks, thereby committing the depositing bank to keep its reserves with the Fed for a specified period of time.

Complicating central banks’ exit strategy, both in the 1930s and today, is fiscal policy. (Monetary policy was not alone to blame.) Ahead of the 1936 US election, a temporary, targeted “bonus” totalling more than 1.5 per cent of gross domestic product was paid out to first world war veterans, providing a fiscal stimulus to an already rapidly recovering economy. The Fed’s concern about the potential for monetary policy to add to this stimulus was not unjustified, for the economy grew extremely rapidly in 1936 (see chart 1), although the Fed’s response was far too strong.

More at link (registration is free).

[edit on 12-8-2009 by theWCH]

reply to post by theWCH

Star and Flag, good graphs and good words.

The collapse of the dollar is being done on purpose.

Some of the articles that outline why the World Bank says we
have entered a Deflationary spiral are outlined in my list.

It has been confirmed by other news sources now that the
$134 billion in US bonds were likely real, and the japanese
men sneaking them around were likely japanese ministry of finance.

If that is true and they are trying to quietly dump them on the
market and other countries start doing it, we don't have long and
it is likely the trigger event for the Wall street journals mentioned
upcoming nationwide bank shutdown.

The two below say that the two japanese men stopped
with supposedly fake bonds were released...And if they
had been fake they would have broken the law and be
held on counterfeiting charges.
This says the japanese are dumping US bonds secretly
to get off the ship before it goes beneath the waves...

www.freerepublic.com...

market-ticker.denninger.net...

We saw a failure of the 5 year bond sale of T-bills.

market-ticker.denninger.net...

Then the failure of the 7 year bond sale of T-bills.

market-ticker.denninger.net...

Below says US foreign Embassys are being told to horde
1 years worth of non-US currency due to a possible
lengthy banking shutdown.

www.marketwatch.com...

Speaking of shutdown, 7 banks in one day went poof...

www.fdic.gov...

Close to 600 Bank of America locations to be closed.

news.yahoo.com...

FDIC top level official says bank closures to increase 10 fold.

moneynews.newsmax.com...

I can see why she would say that with near 2,700 banks being
rated D+ or lower.

www.moneyandmarkets.com...

Over 1,000 Trillion in derivatives are set to implode.

theinternationalforecaster.com...

Once they monetize the debt and start printing money like mad
to buy our own debt up, they will devalue the currency and
turn the US into a modern day Zimbabwe.

They outline how this is likely to happen in these three videos.

www.youtube.com...

www.youtube.com...

www.youtube.com...

The tax revenues have dropped more than anytime since the Great Depression.

www.huffingtonpost.com...

The real U6 unemployment rate is closer to 21%.

blogs.moneycentral.msn.com...

34 million ppl on food stamps, more than ever before.

www.forbes.com...

The World bank says we are entering a Deflationary Spiral.

www.telegraph.co.uk...

While some of the above may be hard to believe, this is
not the first time that things that were hard to believe
ended up being true.

conspiraciesthatweretrue.blogspot.com...

Good Luck to you all !

[edit on 13-8-2009 by Ex_MislTech]

Originally posted by Sundancer
I think we're going to see Hyper Inflation, but it won't be soon. I think the fed will keep interest right where it is for a bit longer.

S&F for you.

I am sure the ppl in the Wiemar Republic felt the same way.

But history played out a bit differently.

When ppl realize how many countries this has happened to and
that it was all done by design, then they "get it".

Watch this 3 part video, then the 2 part video, and you will
understand the adversary we are up against.

Hyperinflation Nation

The above shows how this has been done to many countries.

The below shows it was by design.

Confessions of an Economic Hitman

After watching those two if you do not think that at least something
fishy has gone on in the past, then I do not think I or anyone can
provide ample evidence to steer you from the official story.

Good Luck to you all !

reply to post by theWCH

Banks are opting to park their money due to the zero percent interest rates. Eventually, interest rates will rise slightly and the banks will respond by pulling their money out and lending it, flooding the market with US Dollars.

Here is confirmation of your basic premise, from the horse's mouth:





Which ominously lends some credence to your 3 scenarios.

Okay, so why are we so worried about deflation, when doubling our monetary base should cause massive inflation? It turns out that this money is being stored in excess reserve accounts at the Fed.

Here's open confirmation of that too:





A pretty clear picture is emerging.




reply to post by Amagnon

There's some fairly solid evidence that the Fed is sending money over seas into other central banks, and having them pretend they want treasuries - in fact actually buying them for the Fed.

Here is confirmation of your basic premise, again from the horse's mouth (though the claim the foreign central banks are buying on behalf of the Fed doesn't necessary follow):





Do you have any evidence as to the foreign banks acting on behalf of the Fed? That would be very interesting, to say the least.

I agree with the long term premise that, eventually, uberinflation will be a concern going forward...

However, we must first survive deflation. If we can't survive the deflationary spiral, long term hyperinflation worries are moot.

In order for hyperinflation to occur, borrowing and spending needs to increase...that is NOT happening right now...

a deflationary spiral is not linear. When the debt burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money. Defaults rise because they can't pay off their debts. Default and the fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further.

The Fed is trying to avoid deflation at all costs, as inflation is the preferred way to escape a depression (in Bernanke's view) Interest rates cannot be dropped any lower, even though the markets have baked in inflation as a sure thing...

At present, the US economy is on Government life support, but if consumer spending keeps falling, prices must fall (if companies wish to sell anything), no matter what the markets expect...

can someone summerize these videos
I cannot play utube videos on my computer

reply to post by rtcctr


1) Bernanke says that interest rates will have to rise.

2) Bernanke: "What we're doing is we're creating bank reserves. That's money that the banks hold with the Fed. It's just sitting there idly. It's not chasing any goods. OK? So as long as those bank reserves are sitting idly...

Posey: "But it won't sit there idly for ever. The purpose of it is not to sit there idly for ever..."

Bernanke: "Right, exactly."

Posey "...and while there may be a time lapse, certainly - unless that money gets sucked back in out of circulation it's gunna cause inflation". There's no denying it.

Bernanke: "If it's not sucked in, but as I was decribing, wehave ways of sucking it back in."

Posey: "How?"

Bernanke: "One way to do it is to raise the interest rate we pay on those reserves, which induces banks to keep the money with us instead of lending it out or circulating it through the economy.

Another way to do it is through various open market operations that we can do that essentially pull those reserves out and bring it back into the Fed. So we do have a number of tools to do it, and we're quite aware of this issue. And we will not allow the broad measures of money circulating in the economy to rise rapid enoough that it would cause inflation eventually.

Posey then asks for a written explanation of how the Fed is planning to do this without damaging the economy.

3) Bernanke confirms vast sums have been leant to other central banks ("central bank liquidity swaps"). The figures show an increase from the end of 2007 from $24 billion to $553 billion at the end of 2008.

Classic quote: "So who got the money?"

Bernanke: "I don't know."

"Half a trillion dollars and you don't know who got the money?"

"...under what legal authority?..."

Grayson goes on to ask about $9 billion dollars sent to New Zealand: "That works out at $3,000 dollars for every single person that lives in New Zealand..."

He goes on to say a 20% increase in the dollar nominal exchange rate at exactly the same time that the Fed was "handing out half a trillion dollars".

Grayson: "Do you think that's a coincidence?"

Bernanke: (pauses) "Yes.

Grayson: laughs

He then goes on to question the constitutionality of such moves by the Fed...


Maybe you could see these at another location. They're worth watching.

ty that helps

i dont like the fact they would manipulate the system like this and isnt this what caused the depression

Fractional reserve banking is another way of inflating the money supply. They create capital out of thin air.

3) Bernanke confirms vast sums have been leant to other central banks ("central bank liquidity swaps"). The figures show an increase from the end of 2007 from $24 billion to $553 billion at the end of 2008.

Classic quote: "So who got the money?"

Bernanke: "I don't know."

"Half a trillion dollars and you don't know who got the money?"

Hmmm...coincidence? IMHO...No...they can "Follow the Money"...just don't want to disclose it... :shk: ...lent...I think not...

Welcome to The Real Matrix: Time for The Red Pill?
www.abovetopsecret.com...

www.abovetopsecret.com...

September 11th Electronic Withdraw at Fed/Treas...$550B
US stops Withdraw...freezes credit/mutual funds
It starts around 2:00...

www.nytimes.com...
afp.google.com...

October 10th Electronic Withdraw at UK Banks...
www.bloomberg.com...
www.foxnews.com...

[edit on 8/14/2009 by Hx3_1963]

This is the prelude to world war.
Dollar devaluation is just one part of it.

Question is: are you ready to rock?

Taleb Slams Roubini For Sucking Up To The Fed




Black swans cometh to make fools of men.

[edit on 14-8-2009 by Regenmacher]

This post might shed some additional light on the subject...

PhyberDragon
www.abovetopsecret.com...

In fact...I would recommend reading all of his posts in that thread...

[edit on 8/14/2009 by Hx3_1963]

Originally posted by Hx3_1963
This post might shed some additional light on the subject...

PhyberDragon
www.abovetopsecret.com...

In fact...I would recommend reading all of his posts in that thread...

[edit on 8/14/2009 by Hx3_1963]

I remember James Traficant (best hair ever) and that speech very well.....he was my congressman when I lived in Ohio and he was promptly railroaded and muzzled...he's due for release on Sept 2nd...I wonder if he'll meet with an "accident" soon after his release...