Will Current Stresses Collapse the Dollar?

While most people are waiting for the economy to return to normal once the pandemic is under control and businesses are open again, some experts are predicting the collapse of the dollar under our massive national debt. It seems that more warnings are occurring lately and it is not so difficult to see how this might happen.

The dollar has had the privilege of remaining the top currency around the world for a long time. Due to a combination of coronavirus and other world-wide recent problems, these factors are placing unusual stress on the dollar. Already deeply in debt, coronavirus has caused the government to add trillions of dollars to the national debt through the economic stimulus packages. It is appearing more likely than another package may be passed soon that will be worth at least one trillion dollars – possibly as much as $3 trillion. This moves the debt to closer to the ominous $30 trillion point (or $35T or some believe we will last to $40T) that many see as a debt and interest burden too great to bear resulting in a collapse of our currency and a domino effect around the world. We are already experiencing a situation where there is little room to raise the Fed rate to control inflation.

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With the cases of COVID-19 continuing to rise fast in some places, it is difficult to see how a full economic recovery could take place. Events such as trade wars and the continuation of a coronavirus shutdown could help trigger a collapse, along with the low savings rate.

Large changes in the manufacturing industry on a worldwide basis could also help to cause serious problems in the value of the dollar. Moving industry away from China as the major supply chain source will certainly raise the cost of imported goods and possibly lead to a growing inflation rate.

The United States is not the only country printing large amounts of money. Many other governments, including Britain, Japan, China, Germany, and the Eurozone, are also printing massive amounts of money in an attempt to offset the struggling economies. A few countries are going to negative interest rates to try to boost their economies. Some of these countries are trying to help other nations with similar economic problems. Coronavirus has affected economies of every country where it has spread and most of them have tried to boost their own economy by pouring billions of dollars to prevent the collapse of their monetary systems.

Although the President, Congress, and the Fed are trying to prevent the destruction of the dollar and strengthen the economy, they have never had to face such an extensive crisis like this before. The complexity involved surpasses the imagination and no one can accurately predict the outcome. So far, trillions of dollars seem to have helped but a real economic recovery could be a couple of years away.

The possibility of a second wave of coronavirus could lead to the second shutdown in many states, but it is not likely going to be nationwide except in extreme cases. The cost of keeping millions of people economically solvent and able to pay the bills needed to survive is tremendous.

Some economists believe that a dollar with lower value is necessary to help stabilize the current economic crisis. With a rising dollar value, some nations may join together to weaken it, which occurred before in the 1985 Plaza Accord. The dollar’s strength is actually causing some nations to start using other currencies, which could harm it.

 

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