what are some possible scenario's when the dollar crashes?

[Joe King]

We're confusing crises, here. (A crisis identity crisis?)

During the fall of 2008, when the shippers were not accepting Letters of Credit, it was because they wanted dollars and there weren't enough dollars. They no longer wanted pieces of paper, they wanted FRNs! Do you see the irony?

It wasn't that the shippers weren't accepting liners of credit, it was that the lines of credit weren't being extended to the purchasers of the goods being shipped.
Which is why the buyers had nothing to "pay" the shippers with. The shippers would have gladly accepted credit as payment had the buyers been able to offer it to them.

What that all came down to is that the creditors lost confidence and no longer wanted to continue extending credit to those who relyed upon that credit to continue bringing in new supplies.

Think of it like this.
You import widgets and because of decades of inflation you've come into the habit of using credit to purchase widgets because you know that you'll be able to re-sell them for more in the future thereby making your widget purchases easier to pay for because you're now able to use tomorrows inflated dollars to pay for yesterdays shipments.

Once your creditors see that your debt is going up faster than your anticipated future ability to pay, the credit stops and you're left waiting for widgets you can no longer get, but that you needed to get in order to be able to pay for the last shipment. At which point you go into default.

That's why the credit crunch of '08 happened. Creditors lost confidence and as a result, the gov in all our names, gave the creditors what amounted to ernest money so that the creditors might again have enough confidence in our future ability to pay, to resume extending credit.
How they actually did that was by agreeing to buy the bad debt the creditors had gotten burned by. The creditors were "once bitten, twice shy".


It's the same reason why people in general are having a harder time aquiring credit at all these days.
We're just not seen as being "worth it" as much as we collectively had been in the past.
Which is what will eventually drive up interest rates.
i.e. at some point the creditors will eventually demand higher rates in order to keep extending credit.


BTW, when you say they wanted FRNs instead, are you implying that there's a difference between digital dollars and physical {frn} dollars? They're both nothing more than evidence of past debts.

From July 2008 through the October panic, the US Dollar Index soared 22%, from 72 to 88 in less than five months. Gold plummeted 30% from $1000 to $700. The entire world rushed to US dollars as a safe haven.

And what were they really investing in? Our govs ability to tax us in the future because the us gov was seen as too big to fail, and therefore a seemingly safe bet in the short-term.

Now, I agree that we may be facing Just in Time distribution problems with food and other essential goods. And I agree our system is F'd up, and there is going to be a painful shakeout, and there's going to be a lot of people shocked when the curtain comes down.

But it ain't gonna be because of a USD collapse. At first, it will likely be due to a dollar shortage, where dollars become too valuable because people don't have enough of them. And then after they flood the system with dollars to meet the demand, it will lead to an eventual dilution of the dollar's buying power, perhaps over an entire decade. But expect it to be more insidious than a collapse. Expect it to lose 5-15% per year over an entire decade, so that in ten years it will have lost half of its current buying power. Simultaneously, other fiat currency may lose 60-80% of it's buying power over the same time, leaving the USD as the reigning currency champion, in a tournament of losers.

That 5-15% lose in value represents an increasingly smaller and smaller amount over time in a system that has, over time, been relying on taking bigger and bigger bites out of that value. Those two facts are on a collision course.

Also, keep in mind that dollars increasing in value is but a symptom of less credit having been previously extended.

The dollar can't collapse unless all fiat currency goes away (which is an implausible scenario), or unless some other fiat currency takes its place.

They don't have to "go away" for a collapse of the dollar to occur. All that takes is a lack of confidence on the part of our creditors in our over-all ability to pay in the future.
In the '30s the dollars went away to the point of causing destitution and it didn't "collapse". Rather, it went on to become the World reserve currency.
In a collapse you could have a boatload of them and they'll do you no more good than monopoly money would.

The only scenario I see of another fiat currency taking its place would be through some orchestrated effort by other countries to topple the dollar, perhaps involving China and Russia. Even if the USD lost this currency battle, it would still be a competitive fight, and it would not render the USD crippled. More likely, it would end up like the British pound sterling of the past 75 years, wounded but not dead.

This is happening right now. Loses are starting to be cut., and that will continue at an ever accelerating rate until it reaches a point of critical mass and everyone realizes that the Club is on fire and then rush to the exits.
We, the people of America paid extra for front row seats, if not backstage passes.
i.e. we'll be the last to see that we've actually been using monopoly money to buy stuff with.

[Book]

Now, I agree that we may be facing Just in Time distribution problems with food and other essential goods. And I agree our system is F'd up, and there is going to be a painful shakeout, and there's going to be a lot of people shocked when the curtain comes down.

Americans just learned this week that 500,000,000 eggs contaminated by salmonella were NEVER inspected by any government agency. Half a billion eggs and not one FDA or USDA inspector.

Think about that.

Think about that again.

http://online.wsj.com/article/SB1000...googlenews_wsj

o-->

[AndreaGail]

I remember when back in high school when i worked at the supermarket we were just about to receive a shipment when a huge storm hit and the trucks could not get up the mountains. milk and most dairy was out that night. two days later most produce was out. people were furious

its just amazing how the JIT system relies on split second transportation and delivery and if something happens it all comes crashing down

during the banking crisis in September October 2008, it got to a point where shippers would not accept a Letter of Credit (LoC) at the docks in Long Beach.

the LoC is sort of like a purchase order, it's an agreement to pay, backed by a bank.

so shipping companies refused to unload cargo, including food destined for LA.

i think the dollar crash and the associated banking crashes will result in more stuff not getting unloaded, at the docks.


if i ran a shipping company, i'd keep some money in gold in order to keep my product moving at the dock.

Mike Ruppert sometimes uses the term, "LA is a city of 12 million people living in the middle of the desert, with a 3 day supply of food."

the dollar crash will interrupt our Just-in-Time society.


i remember the justification for Just-in-Time sometime in the '80's, when it was first pushed in the US. "it can lower our inventory costs".

this accounting concept, when applied in LA, creates a real interesting situation when that supply chain gets interrupted.

People get whiney when their blood sugar gets low.

[Defender]

Americans just learned this week that 500,000,000 eggs contaminated by salmonella were NEVER inspected by any government agency. Half a billion eggs and not one FDA or USDA inspector.

Think about that.

Think about that again.

http://online.wsj.com/article/SB1000...googlenews_wsj

o-->

That's cause they're all too busy inspectin' the people who want to sell 5 eggs from the chicken coop in their backyards.

[Saul Mine]

It wasn't that the shippers weren't accepting liners of credit, it was that the lines of credit weren't being extended to the purchasers of the goods being shipped.
Which is why the buyers had nothing to "pay" the shippers with. The shippers would have gladly accepted credit as payment had the buyers been able to offer it to them.

What that all came down to is that the creditors lost confidence and no longer wanted to continue extending credit to those who relyed upon that credit to continue bringing in new supplies.

The important point, in relation to the OP, is that nobody predicted this, and in fact nobody could even figure out what had happened until quite a while later. The details of a collapse are always unpredictable; if it were not so, it could be prevented.

[Joe King]

It wasn't that the shippers weren't accepting liners of credit, it was that the lines of credit weren't being extended to the purchasers of the goods being shipped.
Which is why the buyers had nothing to "pay" the shippers with. The shippers would have gladly accepted credit as payment had the buyers been able to offer it to them.

What that all came down to is that the creditors lost confidence and no longer wanted to continue extending credit to those who relyed upon that credit to continue bringing in new supplies.

The important point, in relation to the OP, is that nobody predicted this, and in fact nobody could even figure out what had happened until quite a while later. The details of a collapse are always unpredictable; if it were not so, it could be prevented.

There were people who saw it coming. They just weren't listened to.

I'd say it should have been obvious that our creditors would do what they did once it became obvious to them that our future ability to pay could not keep up with debts previously incurred. It was also obvious 5 years ago that we were rapidly approaching that point.
Back in 2005-2006 it was clear that housing and real estate in general was the "asset" that was driving the Nations consumption and that real estate ws in a bubble.
If a little guy like me could have seen it coming just based upon the information readily avaliable at the time, why couldn't the big guys?
I told lots of people back in '06 that we were about to have a big recession. Told people not to buy a house then, but to wait. Didn't do any good though.

But if you're talking about knowing exactly what firms would crash/need bailouts and on what day, or what day the market would crash, probaly no one knew those details for sure. Just that it was imminent. {although on a hunch I did in fact pick 10-01-08 as crash-day back in January of that year}

It's just like back in '99 when anyone should have been able to realize that the stock market was primed for a crash.
I mean, just how many non-earning, grossly over valued companies does it take for people to realize they've been sold pie-in-the-sky?
...but of course the ones who bought it couldn't see it as it would be admitting they were wrong, and their profits depended upon them being right.

The reason these things have happened all comes down to what you always say about too many people being infected with the spirit of stupidity.
And you're dead-on when you say that, because there really is a spirit of stupid in this Nation and it blinds people by filling their eyes with $ signs.

[Gknowmx]

Joe, you say that there were people who saw it coming. But isn't that just survivorship bias? we have 6 billion people on this planet that could make 1000s of "warnings". That someone might "predict" something and say they saw it coming is usually not useful without the context of all of the rest of their predictions and warnings. And then there are the folks that will say that prognosticator so-and-so has predicted the last x number of crashes. Again, this is useless without context. I am with Taleb on this, saddly, most are simply 'fooled by randomness'.

[Joe King]

Joe, you say that there were people who saw it coming. But isn't that just survivorship bias? we have 6 billion people on this planet that could make 1000s of "warnings". That someone might "predict" something and say they saw it coming is usually not useful without the context of all of the rest of their predictions and warnings. And then there are the folks that will say that prognosticator so-and-so has predicted the last x number of crashes. Again, this is useless without context. I am with Taleb on this, saddly, most are simply 'fooled by randomness'.

I'm not saying to "predict" it in fortune teller kind of way, just that IMHO it was easy to see that an implosion was coming.
All you needed to see was our collective level of debt rising faster than our collective earnings, while realizing that mostly everything was being financed by ficticous real easte prices.
I realized then that unless some other form of obtaining easy credit manifested itself, the party would soon be over.

[Sparky]

Joe, your explanations clarify why lack of faith in future ability to pay can cause a disruption to distribution and availability of product.

However, this is completely different than lack of faith in the currency itself. That seems to be what is being confused in this discussion.

[Joe King]

Joe, your explanations clarify why lack of faith in future ability to pay can cause a disruption to distribution and availability of product.

However, this is completely different than lack of faith in the currency itself. That seems to be what is being confused in this discussion.

IMO, lack of faith in credit is lack of faith in the currency as the currency itself is based upon debt. Which requires confidence to enter into to begin with.