What If The U.S. Dollar Loses Reserve Currency Status?
If you watch a good amount of financial news or read a number of newspaper or magazine articles, then you have likely already heard the warning bells being sounded concerning the situation of the U.S. government and its increasingly unsustainable debt. What you may not have heard about is the fact that this poses a very real threat to the global supremacy of the American dollar.
This is something that you should think about and protect yourself against, since if other countries choose to no longer accept the American Dollar, or to devalue it to an extreme low, then both your way of life and investments will be severely impacted almost overnight. The subsequent paragraphs explain how this is possible, as well as what the consequences will be if it happens.
Who Is Predicting that the Dollar Will Depreciate?
It may surprise you to learn how many different people predict a substantially lower dollar these days. Best selling authors Robert Wiedemer of “Aftershock” and David Skarica of “The Great Super Cycle” both forecast the housing collapse, financial crisis, and stock market collapse years ahead of them happening. They are calling for a collapse of the dollar.
The country’s most successful investor Warren Buffet similarly says the U.S. will inflate away the value of the currency to pay off the astonishing debts and obligations. Bill Gross the managing partner of PIMCO, the world’s largest bond fund, says the dollar will fall by at least twenty percent in the next year to two. Legendary currency trader Jim Rogers argues that the dollar is finished, and he is heavily buying gold and silver. This list of respected economists and investors demands your attention to the threat.
What is the Advantage of the U.S. Dollar as the World’s Reserve Currency?
So far, the U.S. has been able to get away with massive debts and unsustainable deficits for one simple reason. The U.S. dollar is still the world’s reserve currency, as it has been effectively since World War II and literally since the early 1970′s.
Because all governments and banks in the world accept and hold U.S. dollars as the comfortable majority of their reserves, the United States is able to simply print more money whenever it can not afford to pay for things that it needs. Besides this, the country can borrow money in its own currency at incredibly low interest rates that you have seen approach almost zero. This benefits you, since your national government is able to provide numerous social services that most other countries simply can not afford.
You personally benefit in another critical way every time that you stop at a gas station. With the U.S. dollar as the reserve currency of the planet, oil and all commodities are all priced in dollars. This causes oil and the by product of gasoline to be incredibly cheap to you as an American.
Just compare how much other members of the richest nations whose currencies are not the reserve currency pay for their gasoline. While the U.S. average price of gas comes in at $2.72 per gallon, in Germany it is $6.82 per gallon, in Great Britain it is $6.60 a gallon, in Italy it is $6.40 every gallon, in France it is $6.04 a gallon, and in Japan it is $5.40 for every gallon.
The United States has become the wealthiest country in the world as a result of the dollar as reserve currency. Imports can all be paid for in dollars. This is only true in the United States. Other countries have to first change their currency into dollars to settle their balance of payments on imports and exports. Interest rates are lower than in most other countries, making loans on houses cheap.
With oil and other commodities cheaply priced in U.S. Dollars, you see an enormous range of inexpensive goods available. Food items and other items that use oil and gas as input are extremely cheap. This makes restaurants and similar outings affordable in America. The level of wealth and excess seen in the United States is simply unprecedented, and most of this results from the benefits of the Dollar as universal reserve currency.
How Does the U.S. Abuse This Reserve Currency Status?
Until the early 1970′s, the U.S. was the world’s largest creditor. This meant that the country loaned out more money to other countries than any other nation on earth. By the 1980′s we had begun to reverse this trend, becoming a debtor nation.
It only took another decade to the 1990′s to see the United States evolve into the world’s largest debtor. The transformation has been dramatic, as the amount of debt that the country has taken on in the wake of the financial crisis and economic collapse is over fourteen trillion dollars. The only reason that this has been possible is because other countries continuously loan America money at impossibly low interest rates.
This is not the only way that the country abuses the status of owning the reserve currency. The United States also has printed money electronically since 2007 in increasingly larger amounts. The shocking truth is that America has more than tripled the amount of dollars in existence in the world in only three to four years. So far, other countries in the grips of the devastating financial crisis have grudgingly accepted this practice, although they have complained loudly over it. The day is coming when they will no longer tolerate it.
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