"killing the american dollar" is actually not a terrible strategy. America can not raise enough money to pay back its debts through taxes and
spending cuts alone. By depreciating the dollar you would increase exports, create jobs, and cause inflation. Inflation, though bad for some
investments, is very good if your currently in debt (like most people in the US and the government itself). China has manipulated their Yuan for
years to achieve domestic growth.
Killing the dollar is actually a good strategy to pay back debt and compete with China, while also increasing employment. If you have student loans
or a fixed rate mortgage you want't higher interest rates. Now, if your on a fixed income or have cashed stashed away inflation is very very bad for
you. If your young inflation is good as it increases wages above inflationary rates (in theory) if your old and looking to retire inflation can crush
you if your not wisely invested (bonds are very very bad) Inflation also will cause the stock market to take a hit.
I suggest moving into TIPs, buying property, or investing in foreign currency like the Yuan. You can make a lot of money in a inflationary market.
In essence you want to pay back a fixed dollar amount debt with cheaper money. Hyperinflation can collapse an economic system, as took place in many
African countries and in Germany after WWI. I see no real indication of hyperinflation, the Fed has stated that they are seeking to lock inflation
in at around 2% per annum. The Fed is smart, but nothing in economics is perfect. None the less, inflation between 2-10% wouldn't be terrible for 90%
of people. This is of course on the assumption that wages keep place with inflation Historically there has been a year long lag between inflation
and wage growth, but eventually, wages tend to out pace inflation. Since wage growth is stagnant, this would be good for our economy right now.
In essence, this strategy isn't evil or bad, it's actually text book monetary policy. Decreasing the dollar, coupled with spending cuts is probably
the most effective way to reduce our debt while creating jobs and increasing wages. Some people will also advocate for tax increases. Personally I do
not believe taxes are good for the economy, I'd rather kill the dollar.
Before this becomes political and deviates from objective analysis it should be known that killing the dollar and CUTTING spending is advocated by
moderate conservative economists, as they see merit in creating jobs, paying down debt and increasing competition. Informed libertarians and more
right wing conservatives would/should argue that a strong dollar is necessary and that everything else will sort itself out over the long run.
Raising taxes, killing the dollar and INCREASING spending has merits on it's own and would be the liberal economic theory which is currently being
employed by the Obama administration. As a point of disclosure, I agree in cutting spending and devaluing the dollar and not increasing taxes
(moderate conservative economic theory) but see that the other approaches do have legitimate merits.
The big issue is that depreciating the dollar will jeopardize the US dollar's role as the worlds reserve currency. If the dollar is no longer the
worlds reserve currency we would take a huge economic hit. If you think this will happen buy gold now, you could make a six fold return in 10 years.
Keep in mind though that devaluing the dollar will not necessarily doom the dollar to no longer being the worlds reserve currency. The dollars only
real competitor is the Yuan. Yesterday, Australia agreed to use the Yuan as a reserve currency in trade between countries. Thus indicating an
eventual move to the Yuan, if other countries follow a global move to the Yuan may be unavoidable despite whatever the dollar does. The Euro was the
dollars biggest threat but the recent collapse of European markets, will in the short term, ensure that the dollar remain the world reserve for at
least the next 4 years.
Unlike the US (generally), China is full of graft, still has relatively closed markets, and it's rule of law is suspect at best. A reserve currency
is all about security. Security has equally to do with trustworthiness and rule of law as it does to currency value. It comes down to will the world
trust the Chinese system with it's money or the US? I personally still think that the US democratic open market system has more checks and balances
and is therefore more secure despite the currency itself having less intrinsic value. It is hard to predict if the Yuan will eclipse the dollar and
become the worlds reserve currency in the next 20 years, smart minds on both ends of the debate disagree.
Economics is all about trade offs. There is not one totally good or totally bad system, they all achieve different objectives. Killing the dollar
comes with costs and benefits just like any other policy. I hope that this post is a brief and objective overview that allows everyone to reach their
edit on 1-4-2013 by IndianaJoe because: (no reason given)