Is the Dollar Toast?
The new record breaking budget deficit of $1.8 trillion could have massive repercussions for the economies of this country and for the entire world. The future deficits are expected to rise. This deficit might be the straw that breaks the dollar’s back.
Image courtesy of The Heritage Foundation
There have been many factors that have been putting pressure on the dollar, going back nearly 100 years when the government started running a deficit. It’s been a free ride for the last century because the dollar was the default currency for the world. America was the most powerful economic superpower, and the only country that was a military threat was the USSR. It was like having an infinite line of credit; we could print as much money as we wanted.
What has changed?
But it’s a whole new game now. 100 years of deficits and the evolving world has made that credit line has started to dry up.
Currently, the national debt is $12 trillion. So adding $1.8 trillion is a 15%. So that means that our debt will increase by 15% in a single year. That is huge. And many people are beginning to suspect that America will not be able to pay back the money it already owes. How will it be able to pay when the debt is growing by 15% per year?
There are several other factors that are contributing to the dollar’s demise. First, is that the dollar may stop being the world’s default currency. It could be replaced by the Euro, Chinese or Indian money. In fact, crude oil is already being denominated in euros. It may switch to euros, and then other commodities could follow.
It may sound a bit silly now, but China and India will surpass America as the the most powerful economic power. Those economies are just getting started. Besides that, their huge populations are much younger than America’s. Their future production of goods and services will exceed ours. It’s just a matter of time.
Besides an aging population, America can’t pay for its entitlement programs, such as Social Security as Medicare. The current liabilities are $107 trillion, and increasing every day. This creates more pressure on the government and makes the dollar weaker.
So, what does all this mean? There will be a day of reckoning that is not far away. Either the government will default on its debt, or inflation will rise. The inflation rate could reach 20%, 50%, 100% or more per year.
The effect of inflation will be to wipe out the savings of all the people who have been saving money. It has happened before and it will happen again.
Hundreds of millions of Americans will be “surprised” when they discover all of their money is gone. But it doesn’t have to be that way. The Internet has made all the information anyone could ever want available for free. So the best thing that we can do is get informed and make a decision so that our future can be as bright as our past.
Here are some resources I recommend:
Related posts:
- Is this the End of the Dollar?
- The Demise of the Dollar
- Problems with Social Security
- Are the Country’s Economic Problems too Big?
- Is America’s Heyday Over?
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