How The U.S. Dollar Will Be Replaced

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How The U.S. Dollar Will Be Replaced

Brandon Smith
Alt-Market
Thursday, May 17, 2012

After being immersed in the world of alternative economic analysis for several years, it sometimes becomes easy to forget that most people do not track forex markets, or debt to GDP ratio, or true unemployment, or hunch over IMF white-papers highlighting subsections which expose the trappings of the globalist ideology. Sometimes, you just assume the average person knows what the heck you are talking about. This is, of course, a mistake. However, it is a mistake that is borne from the inadequacy of our age and our culture, and is not necessarily a product of weak character, either of the analyst, or the casual reader.

The great frustration of being actively involved in the Liberty Movement is the fact that many people are rarely on the same page (or even the same book) during political and economic discussion. Where we see the nature of the false left/right paradigm, they see “free democracy”. Where we see a tidal wave of destructive debt, they see a “responsible government” printing and spending in order to protect our “best interests”. Where we see totalitarianism, they see “safety”. Where we see dollar devaluation, they see dollar strength and longevity. Ultimately, because the average unaware citizen is stricken by the disease of normalcy bias and living within the doldrums of a statistical fantasy world, they simply have no point of reference by which to grasp the truth when exposed to it. It’s like trying to explain the concept of ‘color’ to a man who has been blind since birth.

Americans in particular are prone to reactionary dismissal when exposed to facts that disrupt their misconceptions. Our culture has experienced a particularly prosperous age, not necessarily free from all trouble, but generally spared from widespread mass tragedy for a generous length of time. This tends to breed within societies an overt and unreasonable expectation of ease. It generates apathy, and laziness. A crushing blubberous slothful cynicism subservient to the establishment and the status quo. Even the most striking of truths struggle to penetrate this smoky forcefield of duplicitous funk.

In recent articles, I have outlined the very immediate dangers of several potential economic events that are likely to take place this year, including the exit of peripheral countries from the European Union, the conflict between austerity and socialist spending in France and Germany, the developing bilateral trade agreements between China and numerous other countries which cut out their reliance on the U.S. dollar, and the likelihood that the Federal Reserve will announce QE3 before the end of 2012. All of these elements are leading in one very particular direction: the end of the Greenback as the world reserve currency.

In response to these assertions I have received letters from some people (some of them indignant) questioning how it would be even remotely possible that the dollar could be replaced at all. The concept is so outside their narrow world view that many cannot fathom it.

To be sure, the question is a viable one. How could the dollar be unseated? That said, a few hours of light research would easily produce the answer, but this tends to be too much work for the fly-by-night financial skeptic. Sometimes, the job of the alternative analyst is to make the obvious even more obvious.

So, let’s begin…

The Dollar A Safe Haven?

This ongoing lunacy is based on multiple biases. For some, the dollar represents America, and a collapse of the currency would suggest a failure of the republic, and thus, a failure by them as individual Americans who live vicariously through the exploits of their government. By extension, it becomes “patriotic” to defend the dollar’s honor and deny any information that might suggest it is on a downward spiral.

Others see how the investment world clings to the dollar as a kind of panic room; a protected place where one’s saving will be insulated from crisis. However, just because a majority of day trading investors are gullible enough to overlook the Greenback’s pitfalls does not mean those dangerous weaknesses disappear.

There is only one factor that shields the dollar from implosion, and that is its position as the world reserve currency. Without this exalted status, the currency’s value vanishes. Backed by nothing but massive and unpayable debt, it sits frighteningly idle, like a time bomb, waiting for the moment of ignition.

The horrifying nature of the dollar is that it is only valuable so long as foreign investors believe that we will pay back the considerable debts that we (the American taxpayer at the behest of our criminally run Treasury) owe, and that we will not hyperinflate in the process. If they EVER begin to see their purchases of dollars and treasuries as a gamble instead of an investment, the façade falls away. Yet again this year Congress and the Executive Branch are “at odds” over the expansion of the debt ceiling, which has been raised to levels beyond the 100% of GDP mark:

http://www.nytimes.com/2012/05/17/us/politics/obama-presses-congress-to-act-on-his-priorities.html

Barack Obama has made claims that increases in the debt ceiling are “normal”, and that most presidents are prone to hiking the barrier every once in a while. Yet, back in 2006, when George W. Bush increased debt limits, Obama had this to say:

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills…Instead of reducing the deficit, as some people claimed, the fiscal policies of this administration and its allies in Congress will add more than $600 million in debt for each of the next five years…Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

For once, Barack and I agree on something. Too bad the man changes his rhetoric whenever it’s to his advantage.

Today, Obama now asserts that raising the debt ceiling is not an opening for more government spending, but an allowance for the government to pay bills it has already accrued. This is disingenuous and hypocritical prattle. Obama is well aware as are many in Congress that as long as the Federal Government is able to raise the debt ceiling whenever it suits them, they can increase spending with wild abandon. It’s like handing someone a credit card with no maximum limit. For most men, the temptation would be irresistible. Therefore, one can predict with 100% certainty that U.S. spending will never truly be reduced, and that our national debt will mount in tandem until we self destruct.

How has this trend been able to continue for so long? Our private central bank has created the fiat machine by which all economic depravity is possible. Currently, the Federal Reserve is the number one holder of U.S. debt. The Federal Reserve creates its own capital. It prints its wealth from thin air. The dollar, thus, has become its own lynchpin. The secretive institution which has never been subject to a full audit is now monetizing endless debt mechanisms with paper promises. What value would any intelligent investor put on such a fraudulent economic system?

The epic dysfunction of the dollar is rooted in its reliance on perception rather than tangible wealth or strong fundamentals. It is, indeed, like any other fiat unit, with all the inevitable pitfalls built into its structure.

Ironically, the value of the Dollar Index is measured not by its intrinsic buying power, or its historical buying power, but its arbitrary buying power in comparison with other collapsing fiat currencies.

The argument I hear most often when pointing out the calamitous path of the dollar is that it is the go-to safe haven in response to the crisis in Europe. What the financially inept don’t seem to grasp is that the shifting of savings back and forth between the euro and the dollar is just as irrelevant to our currency’s survival as it is to Europe’s. BOTH currencies are in decline, and this is evident by the growing inflationary pressures on both sides of the Atlantic. Ask any consumer in Greece, Spain, France, or the UK how shelf prices have changed in the past four years, and they will say the exact same thing as any consumer in the U.S.; costs have gone way up. Therefore, it makes sense to compare the dollar’s value not to the euro, or to the Yen, but something more practical, like the dollar of the past….

In 1972, just as Nixon was removing the dollar from the last vestiges of the gold standard, a new car cost an average of $4500. A home cost around $40,000. A gallon of gas was .36 cents. A loaf of bread was .25 cents. A visit to the doctor’s office was $25. Wages were certainly lower, but they kept much better pace with the prices of the era. Today, the gap between wages and inflation is insurmountable. The average family is unable to keep up with the flashflood of rising prices.

According to the historic buying power of the dollar, the currency is a poor safe haven investment. With the advent of bailout efforts and debt monetization through quantitative easing, its devaluation has been expedited dramatically. The Fed has left the door open for what I believe will be a final destructive round of publicly announced QE, weakening the dollar to near death:

http://www.reuters.com/article/2012/05/16/us-usa-fed-idUSBRE84F12320120516

The question then arises; why do foreign countries continue to buy in on the greenback?

The Dollar Dump Has Already Begun

One of my favorite arguments by those defending the dollar is the assertion that no foreign country would dare to dump the currency because they are all too dependent on U.S. trade. To answer the question above, the reality is that foreign countries ARE already calmly and quietly dumping the dollar as a global trade instrument.

To those people who consistently claim that the dollar will never be dropped, my response is, it already has been dropped! China, in tandem with other BRIC nations, has been covertly removing the greenback as the primary trade unit through bilateral deals since 2010. First with Russia, and now with the whole of the ASEAN trading bloc and numerous other markets, including Japan. China in particular has been preparing for this eventuality since 2005, when they introduced the first Yuan denominated bonds. The bonds were considered a strange novelty back then, especially because China had so much surplus savings that it seemed outlandish for them to take on treasury debt. Today, the move makes a whole lot more sense. China and the BRIC nations today openly call for a worldwide shift away from the dollar:

http://news.xinhuanet.com/english2010/indepth/2011-08/06/c_131032986.htm

With the global proliferation of the Yuan, and the conversion of the Chinese economy away from dependence on exports (especially to the West) towards a more consumer based system, the Chinese have effectively decoupled from their reliance on U.S. markets. Would a collapse in the U.S. hurt China’s economy? Yes. Would they still survive? Oh yes. Far better than America would, at least…

In 2008, I warned of this development and was attacked on all sides by more mainstream economists and Keynesian proponents who stated that such a development was impossible. Today, it’s common knowledge that our primary creditors are “diversifying” away from the dollar, though MSM talking heads and those who parrot them still claim that this is not a threat to our economy.

To be clear, the true threat to the dollar’s supremacy is not only due to the constant printing by the private Federal Reserve (though that is a nightmare in the making), but the loss of faith in our currency as a whole. The Fed does not need to throw dollars from helicopters to annihilate our currency; all they have to do is create doubt in its viability.

The bottom line? A dollar collapse is not “theory” but undeniable fact in motion at this moment, driven by concrete actions on the part of the very nations that have until recently propped up our debt obligations. It is only a matter of time before the dollar diminishes and fades away. All signs point to a loss of reserve status in the near term.

What Will Replace The Dollar?

My next favorite argument in defense of the Greenback is the assertion that there is “no currency in a position to take the dollar’s place if it falls”. First of all, this is based on a very naïve assumption that the dollar will not fall unless there is another currency to replace it. I’m not sure who made that rule up, but the dollar is perfectly able to be flushed without a replacement in the wings. Economic collapse does not follow logical guidelines or the personal pet peeves of random man-child economists.

Though, to be fair, and to educate those unaware, there IS a replacement already conveniently ready to roll forward. The IMF has for a couple of years now openly called for the retirement of the dollar as the world reserve currency, to be supplanted by the elitist organization’s very own “Special Drawing Rights” (SDR’s):

http://www.guardian.co.uk/business/2011/feb/10/imf-boss-calls-for-world-currency

The SDR is a paper mechanism created in the early 1970’s to replace gold as the primary means of international trade between foreign governments. Today, it has morphed into a basket of currencies which is recognized by almost every country in the world and is in a prime position to take the dollar’s place in the event that it loses reserve status. This is not theory. This is cold hard reality. For those who claim that the SDR is not considered a “real currency”, they should probably warn the U.S. Post Office, which now uses conversion tables that denominate costs in SDR’s:

http://pe.usps.com/text/imm/immc3_007.htm

So, now that we know a replacement for the dollar is ready to go, the next obvious question would be:

Why would global elites destroy a useful monetary tool like the dollar? Why kill the goose that “lays the golden eggs”?

People who ask this question are simply unable to see outside the fiscal box they have been placed in. For global bankers, a paper currency is not important. It is expendable. Like a layer of snake skin; as the snake grows, it sheds the old and dawns the new.

At bottom, men who promote the philosophies of globalization greatly desire the exaltation of a global currency. The dollar, though a creation of a central bank, is still a semi-sovereign monetary unit. It is an element that is getting in the way of the application of the global currency dynamic. I find it rather convenient (at least for those who subscribe too globalism) that the dollar is now in the midst of a perfect storm of decline just as the IMF is ready to introduce its latest fiat concoction in the form of the SDR. I find the blind faith in the dollar’s lifespan to be rife with delusion. It is not a matter of opinion or desire, but a matter of fact that currencies in such tenuous positions fall, and are in the end replaced. I believe that the evidence shows that this is not random chance, but a deliberate process, leading towards the globalist ideal; total centralization of the world under an unaccountable governing body which operates a global monetary system utterly devoid of transparency and responsibility.

The dollar was a median step towards a newer and more corrupt ideal. Its time is nearly over. This is open, it is admitted, and it is being activated as you read this. The speed at which this disaster occurs is really dependent on the speed at which our government along with our central bank decides to expedite doubt. Doubt in a currency is a furious omen, costing not just investors, but an entire society. America is at the very edge of such a moment. The naysayers can scratch and bark all they like, but the financial life of a country serves no person’s emphatic hope. It burns like a fire. Left unwatched and unchecked, it grows uncontrollable and wild, until finally, there is nothing left to fuel its hunger, and it finally chokes in a haze of confusion and dread…

http://www.prisonplanet.com/how-the-u-s-dollar-will-be-replaced.html

antikakistocrat's picture
antikakistocrat
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Apr. 18, 2012 3:41 pm

Comments

"Backed by nothing but massive and unpayable debt, it sits frighteningly idle, like a time bomb, waiting for the moment of ignition." assumes conventional house hold economics with (taxes = spending - debt) which is different from the way a monetarily sovereign govt operates
http://my.firedoglake.com/pshakkottai/2012/04/20/misunderstood-deficits/
Deficit spending is the only way to grow the economy. Not only in difficult times but ALWAYS.

(Federal Deficits = Net Private Savings+ net imports), applies to USA and other nations that have their own currencies. If all deficits are added, the above equation leads to
(cumulative total govt_deficit) = (total national private wealth) = 60 Trillion, approx.
This is proved in
http://pshakkottai.wordpress.com/2012/02/27/national-debt-and-national-wealth-compared/
http://pshakkottai.wordpress.com/2012/03/30/another-proof-of-mmt-4/

In short, (govt debt) is (peoples' anti-debt) and (govt surplus) is (peoples anti-surplus)!
(Govt_debt / GDP) is exactly the same as (peoples' wealth/ GDP) and can be any number not limited to 100%.

The debt is massive, unpayable, and unnessary to pay back and also conceptually nonsensical. It is peoples wealth. It can be paid back by the govt instantaneously by fiat.

This means NO debt ceiling, NO borrowing from itself and NO need for a federal reserve.
The congress has to be educated first, however because it operates as though the gold standard was never abolished. It was abolished in 1971.

pshakkottai's picture
pshakkottai
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Jul. 11, 2011 11:27 am

Sounds like an argument for debt-free money.

antikakistocrat's picture
antikakistocrat
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Apr. 18, 2012 3:41 pm

If the treasury and fed are one entity and owned by the govt and state banks are encouraged based on the North Dakota model, small privately owned banks and credit unions can continue to serve the needs of public with larger reserve requirements, for example, as India does (25% reserve is common). The interest payments go to the citizens instead of the plutocracy and even though it is not strictly debt-free it would be OK. Basically there would be no banks too big to fail and most would be nationalized. The treasury would fund worthwhile projects directly following the orders of various executive departments on projects chosen for funding by Congress. India does that too. Uncontrolled money growth will end as well as influence of money in bribing Congress.

pshakkottai's picture
pshakkottai
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Jul. 11, 2011 11:27 am

This article is typical right-wing nonsense. The author makes conclusions that are total non-sequiturs.

For instance, he mentions Obama’s complaint when increasing previous debt ceilings as being a failure of leadership. He then says that Obama is being hypercritical because now he is the “leader.”

The fact is that there are several foci of leadership in the US. The Republican leadership in both houses of congress are clearly preventing the lowering of the debt by their instance that we cannot, under any circumstances, increase tax revenue. There is a failure of leadership towards genuine debt reduction and its on the Republican side!

olenzekm's picture
olenzekm
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Oct. 26, 2010 11:01 am

Regarding the main point of the article, namely that the dollar will be “replaced,” I say so what! What will they replace it with? My understanding is that it would be with a basket of currencies, which would include the dollar.

We in the US will still use the dollar in our day-to-day transactions. It will not be the end of the world that it is made out to be. The dollar would be devalued. That would be a good thing; it would make our exports cheaper. It would make oil more expensive to which I would say it’s about time.

My fellow Americans, don’t worry. The sky is not falling. We will survive.

olenzekm's picture
olenzekm
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Oct. 26, 2010 11:01 am

"Backed by nothing but massive and unpayable debt, it sits frighteningly idle, like a time bomb, waiting for the moment of ignition." is nonsense. Govt is in debt to itself and people are the owners and collect interest. People DO NOT have to pay the debt. The govt has borrowed from itself and needs to do NOTHING. The national debt clock is a sign of economic ignorance.

http://rodgermmitchell.wordpress.com/2011/07/25/the-debt-clock-a-symbol-...

pshakkottai's picture
pshakkottai
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Jul. 11, 2011 11:27 am

See my other comment on this.

Dr. Econ's picture
Dr. Econ
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Jul. 31, 2007 4:01 pm

where?

J DAILEY's picture
J DAILEY
Joined:
Feb. 23, 2012 7:43 am

I don't remember.

Basically I summarized that there are both costs and bennefits of debt. Defciits cause a shift in resources to holders of treasuries, and now the interest payments are 300 odd billion - which is no small change.

There are also foreign implications of outsiders holding our debt.

Although the debt is not the great evil the Republicans now say it is (and I am sure they will go back to deficit spending if they regain the whitehouse) - it nonetheless has costs.

Dr. Econ's picture
Dr. Econ
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Jul. 31, 2007 4:01 pm

I'm not sure. on one hand i can see how the masters of the central banking system would have a desire to create a one world currency (there was a rumor floating around the internet a year or so ago they would name it the BANCOR) in order to have complete control of all currencies, but on the other hand they already have that in the DOLLAR as it is the reserve currency and our government has been almost completely corrupted. though, it would take less effort for them manipulate it if it was completely under their control. it seems to me this stage is more about devaluation in order to extract wealth. whether a replacement (of the dollar) stage is realized depends on how much society is willing to accept. one good detorent from a one world currency is the current shape of the EURO and Greece's possible departure from it. the other possibility of using another countries currency as reserve is less likely...it takes time and alot of effort to corrupt an entire political process and then sell the world on making that countries' currency reserve. so i can see a one world currency if this depression gets worse and it's marketed to the public with vigor, but i don't see another countries currency becoming reserve. we as humans really need to get a handle on the global banking cabal.

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J DAILEY
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Feb. 23, 2012 7:43 am

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