Would a USD Currency Collapse Help The U.S. More Than Harm It, Long-Term?

August 18th, 2007

Food For Thought

Would a currency collapse help the United States more than hurt it in the long run? Obviously short-term it would be very painful! But think about this for a minute. The U.S. currency system is sort of like a promissory note to provide goods and/or services because it isn’t backed with gold/silver… but if the USD was to collapse and a new currency form, the old currency isn’t backed by anything (like gold or silver) so how would countries collect when there is no collateral? I’m not talking about the consumer debt, where homes are used as collateral, but in terms of a countries debt. Sorry consumers, you aren’t off the hook though your past debts may become cheaper if inflation hits. Also, since most Americans own real assets that they purchased with this debt, if the debt became cheaper, it could be a good thing as the finite resources purchased with this debt will go up in value when compared with the debt.

Yes, a country’s resources may be used as collateral to an extent, but if the value of the dollar was to plummet, and debt is valued in dollars and doesn’t go up, then using resources, which would now be valued much higher, it should be easy to pay off all this old debt with the new currency. Finite resources will still be valued properly because supply and demand will keep the value of finite resources high… but the value of that old currency… it would be in the dumpster and therefore cheap to pay off with the new currency… Example: Pretend the US dollar keeps falling for five years and things like silver are priced above $100 dollars an ounce. Then pretend the US decides to make the Amero, backed by gold and/or silver, a reality. This new currency would be valued very high when compared to the old currency and thus the debts valued in that old currency are worth very little when they do the conversion from the old currency to the new.

I wonder if I was dropped when I was a child or if this actually makes any sense at all. If it makes any sense at all it would be a neat formula to abuse for a world power that can have their currency become a world wide currency (sort of like the USD is)…

Formula To Abuse A Fake (woops, meant Fiat) Currency

1. Create a new currency that is almost a world wide currency, but not backed by anything so you can print as much as you want, when you want.
2. Have it be fairly valued by recording and publishing how many fake dollars are in circulation, if the number of dollars are limited then they will have value (supply/demand) and can be used to buy other limited (finite) resources such as goods and services.
3. Stop publishing the report that indicates how many new dollars you are printing so no one knows how to value the currency anymore.
4. Now that no one knows if your printing money or not (or how to value the currency) go out and print and borrow as much money as you want and buy resources and spend away. Have a free for all spending fest acquiring finite resources. Free… for all.
5. When this debt and excessive printing of money starts to catch up with you (which it will), hope for inflation (to make past debt cheap to pay off) or start fresh with a new currency that is real (backed by finite resources). Then since the fiat currency of old was really cheap before it was replaced, you can use the resources that are valued high to pay off any of the old cheap debt… but only if you need to. Then to top it off, most consumers have bought assets with debt and may not fare as bad as you think, depending on what interest rates do.

Inflation, Good Or Bad?

Hmm, inflation can be good to those who have bought finite resources with debt that is decreasing in value… as long as the interest rates don’t get out of control. The U.S. is in a pickle. Should they increase interest rates to prop up the value of the USD (which they seem to be trying to devalue by printing and borrowing (massive deficits)) or should they keep the interest rate low to help the economy and allow inflation to eventually pick up a bit so past debts are easy to pay off once the government starts running a balanced budget?

Perhaps the title of this article should be, “Would USD Inflation Help The U.S. More Than Hurt It, Long-Term? I think that would have made for a more interesting article…

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