Society as we know it will break down and collapse . While it can be accelerated by certain events like war, a natural disaster, pandemic, terrorist attack, or even an impending asteroid impact, history has shown that economic collapse will essentially happen . To survive the collapse, it is important to read and interpret the signs and understand what assets are important to the current situation so you can be prepared for the worst thereby allowing you to survive intact and with as little damage as possible.
As we noted last week, one of the biggest problems for the Central Banks is actual physical cash.
First, the creation of more dollars allows for the inflation of asset prices. In other words, more dollars in existence allows for a rise in overall prices.
For example, imagine for a moment if the U.S. economy had a total money supply of only $1 million dollars. What if, in this imaginary economy, I attempted to sell you my home for $2 million dollars? While you may like my home, and may even want to buy it, it would be physically impossible for you to do so. And it would be completely absurd for me to ask for $2 million because, in our imaginary economy, there is only $1 million in existence.
So an increase in the overall money supply allows asset prices to rise.
But that’s not all.
The United States government benefits from a global demand for U.S. dollars. How? It’s because a global demand for dollars gives the Federal government a “permission slip” to print more. After all, we can’t let our global friends down, can we? If they “need” dollars, then let’s print some more dollars for them.
Is it a coincidence that printing dollars is the U.S. government’s preferred method of dealing with our nation’s economic problems?
Remember, Washington only has four basic ways to solve its economic problems:
1. Increase income by raising taxes on the citizens
2. Cut spending by reducing benefits
3. Borrow money through the issuance of government bonds
4. Print money
Raising taxes and making meaningful spending cuts can be political suicide. Borrowing money is a politically convenient option, but you can only borrow so much. That leaves the final option of printing money. Printing money requires no immediate sacrifice and no spending cuts. It’s a perfect solution for a growing country that wants to avoid making any sacrifices. However, printing more money than is needed can lead to inflation. Therefore, if a country can somehow generate a global demand for its currency, it has a “permission slip” to print more money. Understanding this “permission slip” concept will be important as we continue.
Finally, the primary beneficiary of an increased global demand for the U.S. Dollar is America’s central bank, the Federal Reserve. If this does not make immediate sense, then pull out a dollar bill from your wallet or purse and notice whose name is plastered right on the top of it.
The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.
If a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.
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First 100 days will convince me of that. The USD has already collapsed from its inception. The people just don’t know it. The final curtain is upon us. Trump is an expert at bankruptcy. Devaluing the dollar brings maximum employment in my opinion. Raising the price of Gold will accomplish that. It will also settle the books and ease the debt burden. This is why the Oligarchs are so scared. Not many more places to put all their gazillions of confetti.
VIA : By Benjamin A. Smith
The American economy has a lot of momentum, but the unhinged trade policies for President Donald Trump could trigger a U.S. dollar collapse in 2017.
At first blush, the dollar seems to enjoy a lot of momentum. Renewed growth prospects emanating from Trumpian policies and higher interest rate expectations have provided a constant bid, buoying the U.S. Dollar Index to 14-year highs in early January.
But is everything as it appears? Most likely, it is not. In fact, a U.S. dollar collapse 2017 could be imminent, depending or the free trade policy agenda of Donald J. Trump.
So why is the liberal international exchange of goods so paramount to the health of the U.S. dollar? One reason has to do with foreign demand of U.S. dollars.
When the U.S. exports goods, this creates demand for the dollar since foreign buyers must pay in U.S. dollars to acquire these goods. Foreign entities then convert their own currencies to U.S. dollars to accomplish this, boosting demand for the greenback. It’s the basic concept of supply and demand written about by Adam Smith in his 1776 book, The Wealth of Nations.
A similar dynamic occurs when America runs up large trade deficits from the importation of goods, except in reverse. As U.S. dollar outflows make their way off-continent, foreign governments who acquire them build up foreign reserve treasure chests. They then look to recycle these dollars back into America, whether voluntary or implicit, through the purchase of newly-issued U.S. Treasuries and corporate debt. As these financial instruments are purchased in U.S. dollars, this creates a constant continuum of demand.
As the United States issues the world’s reserve currency and is its undisputed military kingpin, this creates a monopoly and discipline is needed to keep this whole system together. Historically, it hasn’t ended well for leaders attempting to break free from this construct, which is probably why it’s worked so well for so long.
The U.S. dollar forecast for 2017 has a high state of variance owing to the Machiavellian nature of Trump’s views of trade. These views are constantly in the news cycle, ranging from the reckless to outrageous; from Trump threatening to tax BMW imports to threatening to withdraw from the North American Free Trade Agreement (NAFTA) or the imposition of punitive tariffs on China. He is on record calling the World Trade Organization (WTO) a “disaster.”
The list goes on, and there’s little doubt the rhetoric is beyond posturing.
There are also threats which are less implicit, but nonetheless as concerning from the macro perspective of global security. As an obvious correlation exists between political friction and buoyant trade between nations, the negative relations we’ve witnessed so far between America and its biggest trade partners bodes poorly.
Take, for instance, Trump accepting a call from Taiwanese President Tsai Ing-wen. Irrespective of the reasons behind it, it is believed to be the first direct call a U.S. president or President-elect has taken from a Taiwanese leader since ties were severed between the two nations in 1979. This is a huge deal to China, which considers this a direct challenge to their One China policy. The fact Trump would even go there is suggestive of the aggressive nature his foreign policy is likely to employ.
Further insight on the future tone of Sino-American relations was on full display during the Secretary of State Confirmation hearings. On the topic of China, Rex Tillerson said Beijing’s ongoing island-building strategy—through which $5.0 trillion of trade passes annually—was illegal and “akin to Russia’s taking of Crimea.” Tillerson further stated his intentions to halt reef island construction and vowed that China’s “access to those islands also is not going to be allowed.” (Source: “Chinese Media Has Told Rex Tillerson to ‘Prepare for a Military Clash’,” Time, January 12, 2017.)
As the reference title states, the Chinese were not impressed.
With all the calamity, threats, and innuendo surrounding China-U.S. relations—relations which have steadily deteriorated even before Trump entered the picture—it seems assured trade between the two global titans will take a wrong turn. While Trump castigates the massive annual trade deficit with China, currently around $600.0 billion annually, a steep reduction of trade could lead the Chinese to suspend U.S. debt purchases altogether, which is destabilizing to the dollar.
There’s also the risk that China—the world’s biggest foreign holder of U.S. government debt—dumps a significant portion of its $1.19 trillion portfolio, thereby weakening the dollar in a material way.
Trump must be careful what he wishes for.
It doesn’t take much imagination how events taking place at this very moment could easily portend a U.S. dollar collapse. We previously illustrated how deteriorating relations with China could foreshadow worsening trade dynamics going forward, but in reality, this risk is interchangeable with all big U.S. trading partners. It doesn’t matter if this happens through border taxes or import tariffs, withdrawing from the WTO or embroiling itself in war—all these events lead to the same place for the U.S. dollar.
Beyond the U.S. dollar recycling continuum discussed above, there’s the simple fact the U.S. economy will be materially weaker if protectionist tendencies rule the day. A weaker economy in conjunction with reduced dollar recycling would be a double whammy even king U.S. dollar might have trouble withstanding.
Currently, trade as defined as the sum of exports and imports of goods and services is a huge slice of the economy. The latest World Bank figures (2015) have this pegged at over 28% of total U.S. GDP (Source: “Trade (% of GDP),” The World Bank, last accessed January 24, 2017.)
In an economy with soaring debt levels and stall-speed growth, America can at least afford to shutter a major driver of economic growth—even if repatriating manufacturing domestically provides some offset. After all, the days of robust growth are probably behind us, and newly built factories will be more automated and employ fewer people than before, blunting job creation benefits.
While it’s hard to give a definitive timeline, the best strategy to protect against the economic consequences of a dollar collapse lies with diversifying your portfolio in negative correlating assets.
Gold is one such asset, historically buffering currencies against falling values in local dollar terms. There are literally thousands of examples one could choose from, but we’ll highlight the recent performance of gold prices in British pounds as one such example. As of this writing, one ounce of gold cost £980.10 to purchase, up from £956.00 or 2.48% post-Brexit. Meanwhile, the GDP/USD pair has fallen roughly eight percent during that time. Put another way, had a Brit sold all their pounds for gold the day after the Brexit vote, they would be roughly 10.5% richer than by doing nothing at all.
Protecting wealth is what gold does, and will forever do.
Another asset worthy of consideration is Bitcoin, where controlled supply limits debasement otherwise seen in traditional currencies. The total number of bitcoin in circulation is currently 16.1 million, and it’s mathematically impossible for circulation to exceed 21 million as currently constructed. Its decentralized structure may also be attractive to those looking to store their wealth beyond the prying eyes of Uncle Sam.
Bitcoin doesn’t come without its share of risks however. As it is not legal tender, the government may restrict transacting (or the exchanges which facilitate transactions) at any point. It also isn’t clear whether volatility will decrease to a level where mass mainstream adoption becomes tenable. However, signs are encouraging and investors should keep this asset on their radar screens.
Finally, non-risk adverse individuals should consider short selling stocks of companies affected by a falling USD, or selling USD currency futures contracts if perfect correlation to a U.S. dollar collapse is desired.
Fortunately, the question of how to protect yourself from a dollar collapse is a straightforward one. If the proper risk management principles are used, it’s possible to preserve wealth and thrive in these unprecedented times ahead.
The government implements martial law. Fighting between civilians and government forces break out nationwide. Maintaining more than a 30 day supply of food is considered hoarding food and is illegal. Severe poverty and starvation become a common sight. The government offers marginally acceptable food, water and shelter in exchange for your Freedom, Liberty, and Independence. A Totalitarian regime assumes power and the individual freedoms and liberties once enjoyed by the people are completely eliminated.
In a survival situation, food shortages is important. How long has it been since you have been hungry? How long have you ever gone without eating? After the basic necessities of shelter and water, food is the next item of concern. If you don’t have a good supply, and sometimes even if you do, hunger and even starvation is something that you must confront. When it strikes will you be prepared?
In this video I am re-introducing talk regarding the economic disaster now at our footsteps. In this video, I cover what you need to personally do to PROTECT YOURSELF in this crisis. The crisis is NOT at the door. Currencies like gold the Canadian dollar and us dollar will be critical very soon now. The Baltic Dry Index is at HISTORIC LOWS – Oil is collapsing right now. Most commodities have already colapsed. With worldwide shipping coming to a standstill- the economic end is close. Call this fear port all you want but that won’t stop the reality of what is here and here now. Advice on how to get ready and prepared is given for you to act NOW! PROTECT YOUR FAMILY – What other things do you need to get up and moving on protecting your own family.
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