Dollar Crisis - What are the odds?

The US dollar is poised to face its most serious challenges since the slamming of the gold window by Nixon in 1971. If the dollar fails and loses 20%, 40%, or even 90% of its international value, everything that we import, notably energy, will skyrocket in price.

And with that, so will all other basic living expenses, such as goods that are tied to energy. This means pretty much everything.

In short, a dollar decline will lead to rapidly rising inflation, and, ultimately, a shortage of goods. This means that assessing the risks to the dollar and tracking its value is of paramount importance.

Over across the Atlantic, talk of a major dollar decline is in the news:


The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.

But as investors scrambled to make sense of last week’s events, already one conclusion was all but irrefutable – the US dollar will have to take another major fall.


Link to article


While there is much that needs to be discussed about this massive turn towards corporate socialism that has suddenly been thrust upon as "the only solution," I remain more concerned about what will happen when - not if - the US dollar is shunned by a breakaway state, fund, or central bank seeking to finally protect itself by dumping dollars.

And why would they do that? Very simply, because there are about to be a few trillion more of them floating around even as the world economy stagnates or shrinks.


Sept. 23 (Bloomberg) -- Treasury Secretary Henry Paulson's $700 billion proposal to stabilize the banking system may push the national debt to the highest level since 1954, threatening an erosion of foreign appetite for U.S. bonds.

The plan, which asks Congress for funds to buy devalued securities from financial institutions, would drive the debt above 70 percent of gross domestic product and the annual budget gap to an all-time high, possibly exceeding $1 trillion next year, economists estimated.

"This is sobering, absolutely sobering, even to someone who doesn't drink,'' said Stan Collender, a former analyst for the House and Senate budget committees, now at Qorvis Communications in Washington.


Link to article


A $1 trillion dollar budget deficit is just the cash deficit that DC will probably rack up next year. Worse, I think the number could easily be as high as $1.5 trillion, given the other "troubled" assets they want to include and the fact that their tax projections assume positive GDP growth next year, an assumption that I am not willing to make.

This uncertainty over the funding level creates a level of uncertainty that will continue to push the dollar down. If it falls far enough, it raises the specter of someone "cutting and running" at some point. That's when the dollar decline will begin in earnest.


But analysts say foreign investors will be increasingly reluctant to finance the growing U.S. deficit at the current dollar exchange rate and that funding the gap would require higher interest rates and a weaker currency.

"Nobody knows what form the bailout package will take. We only know vaguely how much it will cost," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. The U.S. fiscal position "does not look pretty for this year and next ... Overall, the uncertainty is driving the current flight out of the dollar," he added.


Link to article


As I've mentioned before, the final horseman of this entire mess will arrive on the day that the dollar begins to fall in earnest at the same time that interest rates begin to rise. When this happens, it will mean that someone "cut and ran," and I would expect the rest to follow quickly, leading to a very sharp decline in the dollar.

If and when that day comes, your options to reposition your portfolio will be severely limited. The doorway will be jammed.

I place the odds of a major dollar decline over the next six months at 50%. If I told you there was a 50% chance of your house burning down over the next six months, would you consider buying insurance? I hope so.

That's what everyone needs right now - some insurance against a dollar decline.

This is a companion discussion topic for the original entry at

I looked around for a long time before finding a financial instrument that hedged directly for the dollar decline. It’s still an instrument, and not something you hold in your hand, but it can work in tandem with other equities you choose to hold onto.
It’s an ETF with symbol UDN. Here’s the website

Say half of all the US dollars are in foreign central banks. If there is a run on the dollar then all those dollars will come home, flooding the USA. Can you say exponential hyper-inflation?
The only alternative is for the fed to jack up interest rates significantly to restore some (false) sense of faith in the world’s reserve currency. High interest rates at a time of a weak dollar and stagnant (more like imploding) economy that relies heavily on imports… We will wish we were Japan in the 90’s.
Don’t forget, this is different than Japan’s recession. On average, our citizens don’t have savings to fall back on as Japan did. They also didn’t have to deal with a reserve currency to flood their banks.
Sounds like we need a period of deflation.

There’s also the MERKX mutual fund

Also the ProShares FXP, FXC, FXF, FXY, FXA work well.
In addition you can check out

Since every solution (including doing nothing)seems to result in dire consequences, here is a proposal that would hurt the least. Confiscate all individual personal assets over and above $25 million, liquidate them, and turn the cash over to the “fund” for wall street. Anything left over goes to the other bailouts that have already taken place. Once the slate is wiped clean (if that can be accomplished), we start over with a new system.

“What has become clear is that Treasury plans to purchase bad assets from banks at prices very near their original value. The risk to taxpayers under this program would be tremendous. If housing prices continue to fall, so will the value of the paper the government has purchased. Under this set of circumstances the public could be at risk for underwriting the great majority of the Treasury’s purchases and never having a chance to recoup their investment.
Buying troubled bank assets at above where they would be valued in a free market now and at a price which is near to the potential price when they mature is a great handout to the banks but undermines almost any chance that the Treasury will ever get any meaningful yield from the bailout.”

i have been trying to run these numbersbut my calculator only goes 9 decimal points. and the one on my dashboard is the same. where can i get one with at least 8 more decimal points? i am trying to explain what all this will mean to my grandchildren. if anyone has any ideas please reply. oh wait a minute i see an opportunity i could make them and sell them …right?

Boy - these big boys will SAY ANYTHING!
IF they really wanted to Fix the housing breakdown - it only takes re-writing the contract with the home owner!
Truth is - they made some money in the late '90s and when the housing market was saturated - they wanted more $ by offering cheap startup loans with Big back end payments. Or, in other words- THEY GOT GREEDY. And now they want US to Bail Them Out?
Best option is for single ownership of the foreclosed places, rent or re-sell them under contracts. Then the government doesn’t need to be involved.
Also, as markets continue a down sliding as these guys talk. I’m moving my funds into local places offering stocks and getting ready for impact.
Do you think we will get to see these guys cry on national tv?

Can someone record the senate hearing? (Paulson, Bernanke, Cox) … Hear, See, Say no evil

You’ve got a calculator on your dashboard?? I’ve heard that they’re making cars with on-board hard drives now, but this is just going too far!
I recommend a good graphing calculator, such as the TI-83 by Texas Instruments. I was forced to buy one in high school for calculus, and I’ve never given it up. It will show up to 10 significant figures, with an unlimited number of decimal places since it automatically converts to scientific notation. Also, you can set it to draw out all of the exponential graphs that you no doubt want to look at, and ask it to graph out hypothetical exponential functions, etc. It will cost you about $100. If you really don’t want the graphing function, you can get a non-graphing model (such as a TI-81) for a lot less which will still easily handle the kinds of numbers you’re looking at.

sorry i have a mac the dashboard has all kinds of nifty widgets. thanks for the info.

What about a spread sheet? That can be used for graphing as well, and your computer screen is a bit bigger than the TI-83’s. :wink: If you don’t have one, then I would suggest Open Office ( In my opinion it is far better than MS Office as far as it’s features go, and the price is much better.

In 2007, Wall Street’s five biggest firms — Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley — paid a record $39 billion in bonuses to themselves.
That’s $10 billion more than the $29 billion loan taxpayers are making to J.P. Morgan to save Bear Stearns.
Those 2007 bonuses were paid even though the shareholders in those firms last year collectively lost about $74 billion in stock declines — their worst year since 2002.
Who’s reporting this? ABC news, hard as it is to believe. (Full article at
When the media aren’t following along with what would seem the insider perogative, it seems suspicious.
It’ll be interesting to see what the real orchestration is of all this after the smoke clears. A la the bank failures that were created in the early 1900’s in order to later bring us the federal reserve. The real intent behind all this may not have come to light yet…

what are you recommending as insurance. property dosnt look so good or dollars, wages will fall in real value? is there just gold silver left?

full story at reuters:
“Credit market disruption has had underappreciated consequences on the economy… what started last summer has accelerated and intensified so much so that we believe any government bailout plan has little hope of improving core fundamentals over the near and medium term,” Whitney said.

Get up and Stand Up America!

Have you considered the possibility that this is being carefully orchestrated? I know that you already believe in the possibility of black box market manipulation and if so why not the entire shooting match. Pretty much the entire developed western world sold the old Weapons of Mass Destruction lie to there people and happily marched on Bagdhad for oil and as your Crash Course already points out this was just as important to the rest of the west as it was America. If this was the precursor, who is to say that America, Israel, Japan, Britain, France, Germany the rest of the Eurozone along with Australia and Canada are working in unison with one strategy and if so do they have the financial and political clout to pull it off? Just a thought?


The human brain cannot accurately process a number beyond seven digits. That’s why mathematicians came up with scientific notation. So just loop off all the zeros and add a 10 to the 8 (or 9th, 10th, or 11th) at the end of the number… It’s like the energizer bunny - it keeps going and going…

But wait, when I add back the zeros my brain can’t comprehend that large of a number - OH MY!

This is truly mind boggling!

I believe we have reached a point where a national discussion needs to begin, on how we will continue this project called civilization.

One of the biggest deceptions or delusions we have in this country is “… money or the accumulation of wealth in the form of arbitrarily re-assignable value of dollars, is all we need to be concerned about.” We need to take a fearless and accurate assessment of our current situation (wasn’t that one of the 12 steps in the Alcoholics Anonymous?) Let’s see, we don’t manufacture anything or value (manufacturing accounts for about 15 percent of GDP), we are hopelessly in debt domestically, and our current account deficit is running over 600 billion a year!

If we wish to continue this project called civilization, a number of things need to occur. They are:

  1. Realization we need to eat, therefore we need to grow the food we need with less and less fossil fuel inputs. As in Cuba, the social status of farmers and farm workers should rise to that of doctors.

  2. Realization commerce will always occur and continue. in the past corporations were an instrument of control to subjugate a military conquered population. We don’t need corporations to continue this project called civilization. As a matter of fact I argue that we would be better off without them! But that’s another discussion for a future time.

  3. Cancel our roles in insane “free” trade agreements that allow corporations and foreign nations to plunder our country financially. This includes Nafta, WTO, GATT, and so forth.

  4. Increase the federal minminum wage to something in the neighbourhood of $14 and index it for inflation. This will put money in the hands of workers who will buy things - sounds like demand economics, not the insanity of supply side economics given to us by such notables as; Fredric von Hight, Aurther Laffer, Milton Freidman, Alan Greenspan, and a host of other thieves

  5. Extend unemployement benefits to 18 months.

  6. Impose import duties and taxes to bring our manufacturing base back home.

  7. Implement tax policies that favor small, local businesses over large corporations.

  8. I would even argue that corporate charters only be granted for a fixed period of time. Once the time period has expired, the now defunct corporation needs to start the incorporation process all over again. This should give society the right to evaluate whether or not this corporation existence was a benefit or not. I realize I’m rambling here, but we have just witnessed how large corporate behemoths do harm not only to a nation but the world. I seriously question whether the existence of such corporate behemoths should be allowed. Too big to fail really means too big to exist!

    Therefore real insurance means societies (and by extension, the individuals) ability to grow enough food to sustain itself and the ability to conduct local commerce to meet the basic needs of life. Yes I know we could have a whole discussion around the last sentence but I think you get the gist of what I trying to say.

    A lot of what I trying to express (albeit rather poorly) is contained in Jim Kunstler’s book “The Long Emergency”. Kunstler is much more eloquent and sarcastic than I could ever be - although my sarcastic index is rapidly rising lately…