Scenario analysis: What will happen to India and Australia upon the collapse of the US dollar

I have repeatedly commented on this but I believe the time has come not just to speculate about the collapse of the USD but to plan for it.

The laws of economics are inviolable, and despite the advantage US has, with its reserve currency, nothing is for ever.

In particular, no country can expect to life off debt, for ever.

It is clear that the USD will collapse, sooner than later. Unfunded liabilities, massive increases in debt, lukewarm growth/ recovery, all point in one direction.

As USD has become a welfare state and veered steeply towards socialism, the writing is on the wall.

Yes, if the US manages to invent something hugely productive, and very soon, such as fusion energy, it might still escape this fate, but at this stage, there is more than an 80 per cent chance of the USD collapse in the next few years.

What will happen when the USD collapses?

1. Just before the USD collapses, China will try to buy out strategic US assets – else it will be left holding the lemon.

2. Americans will no longer be able to afford Chinese imports and poverty will rise dramatically

3. Welfare payouts will fail to keep pace with prices, further increasing poverty in USA.

4. Social unrest and violence will dramatically increase in USA.

5. Yuan will become a reserve currency.

BRAIN DRAIN WILL REVERSE

Indians (particularly those not fully settled in the USA) will return to India. Despite its miserable performance India is not going to collapse any time soon. This is good news, but these excellent people will revert to the low productivity of an average Indian. Ultimately, these people will have to leave for other countries.

Countries like Australia will be able to attract the world’s top talent. creating a virtuous cycle – and boosting growth and the AUD.

WAR

If there is an extreme collapse of the USD, America could go to war as a way out of the mess. However, its currency will buy less of everything abroad, so its ability to win wars will be severely degraded.