For all those that think the US $ will always be safe because it is the world reserve currency, those days are ending. From the March 2012 meeting of the "BRICS" (Brazil, Russia, India, China, South Africa): Among the many subjects discussed by the leaders were the creation of an alternative global lender and dropping the U.S. Dollar as a reserve currency. The leaders believe that institutions like the IMF (International Monetary Fund) and the World Bank have now "outlived their usefulness" and the creation of a alternative global lender would be the way to go. These 5 countries are expected to make up 50% of the global GDP in the next 8 years. ..... At the summit all the leaders signed an agreement to give out loans in their local currencies, thus moving away from the US. Dollar and the Euro. An important item on the agenda was the possibility of a BRICS bank, to serve as an alternative to the Western-lead traditional institutions like the World Bank and the IMF. Read more: http://digitaljournal.com/article/322072#ixzz26E7Sk54T Australia, Japan, Chile, and the United Arab Emirates are also in on the deal. Once the US has a bond auction and nobody shows up, the US will collapse from the weight of its debt. It might be too late already thanks to all previous Presidents and Congress, but particularly thanks to obama and the democrats of 2008. If the big spending dems and obama take control again, the US is definitely finished.
I agree that at some point there will be a "dollar crash", but it is by no means destined to be a hard landing. Working against the effect Gator mentions is that the U.S. Dollar is the de facto world currency (treasury bonds even more so than dollars themselves) and the world's nations and bankers know that. The last thing they want to see is a sudden collapse of that value - they would be much happier with a long, drawn-out reduction in value like what happened to the U.K.'s pounds sterling from about 1900 to 1960. This is not to say that war, panic or domestic political stupidity (look at the debt ceiling showdown in 2011 for an example of the latter) couldn't trigger a collapse of the dollar. In my opinion global confidence is key, and that means that our political leadership on this issue must be competent and that the rate of growth of the debt is not too rapid, and that the total debt should not exceed that of the GDP (in other words, the debt shouldn't be higher than all U.S. domestic economic activity for a fiscal year). Other danger points would be OPEC going off the dollar standard for some reason or a collapsing Chinese economy that decided to liquidate a large percentage of its dollar holdings. Looking at these possibilities, I think the real danger period will start in 2020 and last for about 15 years. If we can get through that period without a meltdown, a declining dollar will hurt but the pain will be phased in and America will be able to adjust (including increasing our exports!).
