Anyone who doubts the dollar is in serious trouble need only contemplate the following facts.
1) The federal budget deficit this year is $1.4 trillion, which is
nearly a trillion dollars more
than last year.
In other words, the deficit has ALMOST TRIPLED IN A SINGLE YEAR.
2) Already, INTEREST ALONE on the debt takes up about 1/3 of tax recepits. Imagine holding so much debt that 1/3 of your salary had to go to paying
off ther INTEREST on the debt, never mind even attempting to pay down the principal.
3) At some point in the next 20 years (probably much sooner since stats are constantly massaged), the cost of servicing the interest will actually
exceed all possible tax income. Again, this is similar to point #2 above, but much, much worse. To use an analogy, imagine you earn $50,000 a year and
have debt of $5 million with an interest rate of a mere 1%. Basically, every penny of your income would be used paying off the the interest...even at
the super-low rate of 1%. Any rational lender who realizes this would demand higher interest rates. Imagine if interest rates got jacked up into the
double-digits like they did in the early '80s. Then in this scenario, you'd be earning your "respectable" salary of 50K a year but be on the hook
to pay, say, 500K or more a year in INTEREST ALONE...never mind paying down your five-million-dollar debt itself. This is the position that the US
will find itself in quite soon.
4) Suppose you were the person in the analogy described in #3 above. You would have only one choice: to default on your insane debt. Because you
literally would be unable to service the interest alone (to say nothing of the underlying debt itself). In the case of the US government, this default
would likely take the form of printing massive amounts of currency...in other words inflation/hyperinflation. Given the huge gap between the money
owed and the ability to pay, the scenario would tend more towards the "hyperinflation" than the "inflation" model.
5) Add to the above the fact that millions of baby boomers are just beginning to retire and demand extra benefits, to say nothing of possible future
bailouts that might be necessary, "stimulus spending," national healthcare, and other fiscal pipe-dreams.
Given all this, how could anyone NOT imagaine a collapse of the dollar?
[edit on 11/20/09 by silent thunder]