Friday, July 11, 2008

The coming dollar collapse?

By Rick Morris

Warning: Downer Alert.

I talked at length today to a close friend of mine, who I will not name here because of the sensitive nature of some of the information he shared with me, about the American economy and where it is headed. As a serious investor, he is always very well-attuned to the global economy, having first explained the derivative crisis to me four years ago, well before most observers saw it coming. Long story short on derivatives: they are essentially a financial chain reaction; if Company X fails, it would take down Company Y and so on. Presently, there are over $516 trillion worth of derivatives in the economy -- and the actual amount of caysh that exists is well south of that. Oops!

Now, there are additional wrinkles to the situation. The collapsing US dollar is becoming worthless to the foreign entities who are propping it up presently (i.e. China and oil-rich Arab nations) due to the monstrous debt that occurs from the fact that we are running the currency printing presses like there is no tomorrow. My friend predicted to me that, by 2010 (relatively early in the term of the next US president, a not-inconsequential consideration given the unprecedented shock that will occur from this development), the dollar will implode altogether. The scenario then? The government will stiff all foreign holders of the dollar, cease producing it altogether and create a new currency -- and we, the people, will then be able to redeem it at the rate of one "new dollar" for every five "worthless dollars" we now hold. Nothing like having a $10,000 bank account that becomes $2,000 overnight!

This article explains in great detail how we got to this point. You may not agree with all of Rick Falkvinge's conclusions, but his description of the circumstances is spot-on. We may very well be heading for a global calamity even worse than the Great Depression if the crisis peaks in this manner. Now, governments can only seize this kind of power in absolute emergencies, but can anyone rationally doubt that people will be so frightened if their dollars are rendered worthless that they'll tolerate anything? And frankly, given the performance of the Bush Administration (and equally important, their utter incompetence at fighting back politically and communicating any of their actual successes), the next administration could do just about ANYTHING and use "You can't believe what an exploding crisis we were left" as an excuse. When it's all said and done, America's leaders may very well have ended up doing what foreign dictators could not accomplish in times of war: bringing down this country and all of the great work that made it the most successful in the history of civilization.

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