The Dollar Era is Nearly Over

While listening to an interview with a MIT economics professor today on Tech Ticker, I was astounded by how he answered the following question, Is America headed down a similar path as Greece?

Professor Simon Johnson said unequivocally “Absolutely not”.

I couldn’t disagree more. Why would a economics professor from a prestigious university answer this question like that? He said it won’t happen because America’s debt is denominated in dollars that we control, Simon notes, unlike Greece’s fate that’s tied to the European Union.

On the surface this makes sense; however that is if the dollar even exists as the reserve currency of the world. He either in denial or totally oblivious.

You may be saying to yourself “the dollars never going away”. I say that all indicators say its already headed that way.

The Independent reported as recently as last year of secret meetings Gulf Arabs were planning – along with China, Russia, Japan, and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold, and a new, unified currency planned for nations in the Gulf Co-Operation Council, including Saudi Arabia, Abu Dhabi, Kuwait, and Qatar.

In addition, The Financial Times reported China had proposed replacing the US dollar as the world’s leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.

As China, Japan, the Saudis and the other creditors to the United States (and hold mass quantities of our debt)finally figure out that the dollar is worthless (as all fiat money eventually becomes)they will want to dump their dollars and demand a new reserve currency (likely a worldwide currency) which in due time will fail also like all paper money does.

Where will that leave the United States? So many say that its the military might and economic might that makes the United States so great. These assertions are only partially correct.

The main reason is the status of the US dollar as the reserve currency of the world (it was made that in 1971 after the last vestiges of the gold standard disappeared.

Without the reserve currency status of the dollar worldwide, we will get to a point where we are in a similar playing field as everyone else.

I don’t know exactly what it’ll be like if the dollar collapses, but we can look at recent and older examples of currency crashes in other countries and it’s not pretty.

We definitely need to get a grip on all spending, domestic and foreign, stop creating so many dollars out of thin air and live within our means.

Unfortunately, its not looking good.