I don't know how soon taht might be, but I'm saving up for one regardless.

 

There are two things which would immediately cause a currency crisis. One would be a downgrading of U.S. debt by the ratings agencies. A second would be a demand by China to either cash in or in some way 'securitize' their Treasury holdings.




Printing money in and of itself will not lead to hyperinflation, if the velocity of money is low - as it now is because of the credit crunch. The U.S. dollar is not just the reserve currency of choice. It is the currency to which many countries directly peg their own currencies, many assets (including oil) and denominated and traded in, and serves a a basket of currencies from which other things (I.M.F. special drawing rights, the Chinese Yuan, etc.) are valued. If the dollar collapses, the global economy collapses. Because of that, many nations have a strong interest in looking past the dollar's many, many manifold weaknesses. At the same time, look for them to slowly remove their nuts from the vise, and hedge their bets in the future.




Push will come to shove when the American economy recovers, and the Fed and Congress will have to engage in counter-cyclical policies in order to shore up fiscal policy and address current imbalances. The Federal Reserve will have to sell their Treasury bonds and corporate debt holdings in order to reduce the amount of dollars in circulation and lower their balance sheet as a percentage of G.D.P. Congress will also have to increase taxes and encourage Americans to save so that the trade and current account deficits can be reversed. If these things do not happen (and I admit, I am pessimistic), then I will agree with your predictions.




But I still won't buy a gun.

 

You suppose that the American economy will recover soon. You may be right. However, if you're not, we'll be in trouble in a different way; government will have dumped tons of money into the pot and made a huge land grab, but if we don't pull out from this nose dive as quickly as we believe, we will face a vast increase in raw capital coupled with declining equity behind said capital. For our "confidence based" economy, that means a hundred dollars won't buy a cheeseburger. Because the world's economy is pegged to our own, that means that as we suck the life out of our own money, we suck the life out of theirs in order for us to get by. Yes, it would hurt for them unpeg to us, but it's not as impossible as you think. The United States has switched from silver certificates to dollars only and from gold backed dollars to air backed dollars within the last hundred years. It can be done. Other nations don't even have to switch currencies; they just have to let theirs float, which will be very tempting the more the effect of floating means their value will soar upward like a foam block that had been held deep underwater by an anchor. It's also easy for countries to start using euros or something else to price oil and other commodities. The really painful thing for the world to stop betting on the dollar is all the reserves they hold. If they dump those, they have to violently contract their own money supplies just to be free. However, after a certain point, it becomes surgical. You realize you have a tumor that's eating you and eating you, and eventually you accept the invasive, risky, and debilitating surgery you need to carve it out. If the economy does not recover in spite of the "stimulus" package, and particularly if the government decides to print yet more money for a stimulus 2, we could easily be looking at such a currency crises.


If the economy does recover in a timely manner, what you are describing is another artificial contraction to offset an artificially juiced up boom cycle. When money is made cheaper and easier by artificial mechanisms, the inevitable result is wild speculation and bubbles. Investors realize that the cost of money is crazy cheap, and they had better make it work for them as fast as possible in any way they can. This is what has caused the dot com bubble, the housing bubble, stock market bubbles... all the bubbles. Now, when we face another violent artificial contraction to offset the next violent artificial boom, how can it be anything but a hundred times worse than this current crises given how much capital and debt we're generating in so short a time? Government will have to encourage people to save- how? They can see what happens to dollars they hold- the life gets sucked out of them. Saving is losing. That's why people don't do it. Prior to the Fed, people and businesses were saving, and banks felt threatened by how much industrial growth was being funded in house by company savings. Part of the purpose behind the creation of the Fed was to protect banks against the threat of people not needing to go into debt. As for taxes, there's just no way. People will revolt if taxes get to too high- the game in central bank laden countries is always to tax people as high as you can without revolt and make up the difference with the hidden tax of printing new money (thus stealing value from everyone's existing money or saddling future generations with the debt burden, thus taking the additional tax revenue desired anyway). Besides, what are we going to do, double everyone's taxes? Is a 60 to 80% tax even going to start to make up our debt obligations? There's no way. Taxation is such a small part of the picture. The government may have to just print more money to cover their ass on the new debt. Here again, in the eyes of the world, this is a transparent ploy and is equivocal to debt repudiation.


The only way out is to radically reform monetary policy. We don't have to necessarily do stuff like I want to do- end the Fed, hard currency, and all that. However, we have got to bring discipline and oversight to the process one way or another. That's the bare, bare, bare minimum for us to have any hope of getting free. Yes, that will mean we can't keep having our cake and eating it too. We'll have to reduce spending greatly, both public and private. We'll have to run lean and mean. A nation is like a person- you eventually run up your credit limit to the end, and then you cut back and start working harder so you can get out of debt, or else you go bankrupt and the credit's gone and your creditors come to take everything you have. If we don't bring discipline and accountability to our money process, and if the nation goes bankrupt as a result, it might take the form of the cost of goods and services soaring far beyond what people can pay, people going hungry and destitute and stores close and shipping slows to a trickle, desperation in the streets, violence and pillaging everywhere, UN peacekeepers being brought in to restore order, a new global currency heiled as the savior, the World Bank becoming an institute somewhat like a global Federal Reserve to issue a world currency (the Bancor?), a brief period of restored economic life as the new money actually works for a while, a series of new booms and busts engineered by the World Bank, a hellish global depression that results from wilder and wilder cycles of expansion and contraction, and a global police state of "UN labor camps" where people are conscripted into working after the government has foreclosed on almost all property and nobody is free as the result. But now I'm being pessimistic.


 

Hmmmm! A Gun will not help bro! I am generational offspring from former thirdworld inhabitants who have long dealt with living without and you better believe that a gun is the least of your worries! A few beers dude seriously we must have!!! LOL Americans need to re-adjust its mental and spiritual outlook on living plus studying and disecting history helps a little!
 

I respect your position. Ultimately, being Gandhi is better for the world than being a bad ass.
Yes, beer and deep conversation, soon my friend!
 

And what if one has no gun?
 

I guess what I'm seeing is that guns are not for everybody. Falling on the ground and bleeding while your assailant plunders your house is kind of fun too. I suppose if you really want a semi-peaceful alternative, you could get a big old noisy dog.

 

I see.


Must... Buy... Gun...
 

Well, okay, not necessarily.
How good are you with a katana?