Will the dollar crash or crumble?

Here are some reasons that favor a slow crumble as opposed to a quick crash.

  1. The U.S. dollar accounts for about 3/4 of world trade. It provides the liquidity for international commerce.  No dollar, no global trade.
  2. In order to export goods to the to the richest country on earth (at least until recently), exporting countries take dollars as payment. As a result, net exporters to the U.S. hold a large percentage of their national wealth as dollars. If the dollar loses value, they lose too.
  3. Even if the dollar was on its way to worthless (which it very well could be), no one dares divest too quickly and spark  a run on the dollar. If you’re holding lots wealth in dollars, a crashing dollar wipes out your own wealth.  If China, for example, wants to divest itself of dollars, it’s going to do it as stealthily as possible, not only to keep exports flowing to the U.S,  but also to safeguard its own wealth.
  4. Oil is bought and sold in dollars.  No industrial economy can run without oil and in almost every case, if you wanna buy gas, you gotta have dollars.
  5. The U.S. has the most powerful military in the world and is willing to use it, especially when oil is on the line. Just ask Saddam Hussein.

I’m not saying that the dollar is unbreakable, far from it.  A reversal of any one of these factors could sink an already foundering U.S. economy and the dollar with it. The real question is: Will it be a slow, steady crumble or a crash?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: