Thread: So What Happens If Dollar / Euro Both Collapse

Currency Crisis! So What Happens If The Dollar And The Euro Both Collapse?

November 26th, 2010 at 4:06 am
18 comments

Some analysts are warning that the U.S. dollar is in danger of collapse because of the exploding U.S. government debt, the horrific U.S. trade deficit and the new round of quantitative easing recently announced by the Federal Reserve. Other analysts are warning the the euro is in danger of collapse because of the very serious sovereign debt crisis that is affecting nations such as Greece, Portugal, Ireland, Italy, Belgium and Spain. So what happens if the dollar and the euro both collapse? Well, it would certainly throw the current world financial order into a state of chaos, but what would emerge from the ashes? Would the nations of the world go back to using dozens of different national currencies or would we see a truly global currency emerge for the very first time?

Up until recently, the idea of a world currency was absolutely unthinkable for most people. In fact, the notion that all of the major nations around the globe would agree to a single currency still seems far-fetched to most analysts. However, if enough "chaos" is produced by a concurrent collapse of the U.S. dollar and the euro, would that be enough to get the major powers around the world to agree to a new financial world order?

Let's hope not, but it is getting hard to deny that we are heading for a major currency crisis, and if the U.S. dollar and/or the euro collapse, the world will certainly never be the same afterwards.

In case you missed it, China and Russia made a very big announcement the other day.

They told the world that instead of using the U.S. dollar to trade with each other, they will now be using their own national currencies.

Most Americans don't realize it, but that is a very, very big deal.

The fact that the U.S. dollar has been the primary reserve currency of the world for decades has given the United States a tremendous amount of economic power.

But now nations are beginning to lose confidence in the U.S. dollar and they are slowly starting to move away from it.

When the Federal Reserve announced a new round of quantitative easing in early November, it created a huge backlash from other nations. For decades, many other countries have been heavily investing in dollar-denominated assets, and now they are quite upset that those assets are going to be devalued.

Chinese Finance Vice Minister Zhu Guangyao used very strong language in denouncing the Fed's new quantitative easing scheme earlier this month....

"As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets."

German Finance Minister Wolfgang Schäuble was even more blunt. He has called current Federal Reserve policy "clueless", and he says that he is absolutely disgusted with the Federal Reserve at this point....

"They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous."

So where is all of this going?

If the Federal Reserve keeps flooding the system with new dollars, the rest of the world could eventually totally reject the U.S. dollar and U.S. Treasuries.

If that day ever arrives, the results would be beyond catastrophic as the following short video from the National Inflation Association demonstrates....

The Day the Dollar Died

http://www.youtube.com/watch?v=2N8gJSMoOJc

But it is not just the U.S. dollar that is in trouble.

The euro is in danger as well.

Just consider the financial problems that some major European nations are experiencing right now....

*Standard & Poor's has slashed Ireland's credit rating two notches to "A", and is warning that there could be further downgrades. The Irish budget deficit is projected to reach 32 percent of national output this year. Ireland's finances are being called "just one big pyramid scheme", and they recently accepted a huge European bailout. Unfortunately for Ireland, this bailout comes with strings. The Irish government is now being forced to implement an austerity program that is being referred to as "draconian".

*Analysts are projecting that Portugal is going to need a bailout of at least 50 billion euros. The government of Portugal has implemented some harsh austerity measures in an attempt to get the red ink under control, and the people are not pleased. On Wednesday, a massive national strike shut down travel and basic services across the country.

*Things are so bleak in Portugal right now that Foreign Affairs Minister Luis Amado recently stated that his nation "faces a scenario of exit from the euro zone" if a solution is not found for this financial crisis.

*Greece was the first nation to need a European bailout, and now there are rumors that they may need even more assistance. The statistics agency for the EU, Eurostat, recently revealed that Greece's budget deficit for 2009 was actually 15.4% of GDP rather than 13.6% of GDP as originally thought. The Greek national debt is now well over 120 percent of GDP. The financial problems in Greece never seem to stop.

*Belgium's debt has reached 100 percent of annual national income, and the cost of insuring that country's debt has now hit record levels.

*Even Spain is in trouble. Rates on Spanish 10-year government bonds have risen to frightening heights in recent days, and the official unemployment rate in Spain is hovering around 20 percent.

*In a recent article entitled "A Spanish Bailout Would Test Europe’s Strained Finances", the New York Times quoted Jordi GalÃ*, the director of the Center for Research in International Economics at Barcelona’s Pompeu Fabra University as saying that rumors that Spain is in financial trouble could end up making it a self-fulfilling prophecy....

"If investors expect Spain to have trouble refinancing its debt, now or somewhere down the road, then Spain will have trouble,â€

If the dollar and the euro collape, we all end up working for the Chinese.