Is the Dollar Going to Collapse?

An annual budget deficit of over $1 trillion, annual trade deficit in the neighborhood of $728 billion, an official national debt of $16.7 trillion, and unfunded liabilities of $123 trillion.

And all liabilities are being carried by an economy generating $15.6 trillion each year in gross revenues (gross domestic product, or GDP).

How much longer can we continue to carry such enormous liabilities with such low income? Will we reverse the trend? Or will the dollar collapse under the weight of so much debt?

Purely as a matter of basic arithmetic, the betting has to be on a dollar collapse, at least eventually. It’s a matter of far too much debt and ongoing liabilities against too few resources. Can we escape that fate? That remains to be seen, but it is entirely possible.

Let me add a bit of a personal disclaimer here. This is an incredibly complicated topic, one in which emotion and politics play a major role. Personally, I don’t know how this will play out, or if it will ever reach a boiling point sufficient to cause a collapse. But as citizens of a nation with such a disturbing balance sheet, it is a topic we should visit from time to time. I’m not predicting a dollar collapse – though I’d hardly be the first if I did. But I will attempt to offer possible scenarios and some logical preparations for the purpose of opening up the discussion.

The floor is wide open for debate, disagreement and your own speculations. We are, after all, discussing future events that are merely possible, and entirely subject to change due to unforeseen circumstances.

What Might Cause the Dollar to Collapse?

The collapse of a nation’s currency is not an unusual event in history. In fact, it’s even more common in the past 100 years or so due to the advance of paper currency that is not backed by physical assets. For example, Roman coins continued to circulate as money well after the Empire collapsed because of their silver content. No country in the world today uses silver as a currency, or permits the redemption of currency for a certain amount of silver or gold. A nation’s currency then is entirely a product of how well the nation functions.

That being the case, a currency can collapse based ultimately on uncertainty. Here is a short list of factors that could cause sufficient uncertainty to result in a dollar collapse:

  1. A run on the dollar by foreign entities
  2. The government opting to print money to cover an out-of-control budget
  3. A significant increase in inflation (see #2 above)
  4. The U.S. loses a significant war
  5. The emergence of a currency that replaces the dollar as the international reserve currency
  6. A major negative event that we can’t comprehend right now.

Any change in the status quo could cause enough uncertainty to produce a dollar collapse.

Or not.

A Currency Collapse is a Matter of Degree

When we talk about currency collapse – or in our case a dollar collapse – we’re actually talking about several possible scenarios.

In one instance, a dollar collapse could be a significant decline in the purchasing power of the currency. For example, a doubling of general price levels in a two or three year period would mean – in reality – that the value of the dollar has fallen by 50%.

A more severe version could be that we have an annual inflation rate of 50%. The dollar would continue to lose value in either scenario, but faith in the currency will decline along with it.

Either scenario might more properly be called a hyperinflation, but once that takes hold it can easily appear to be (or cause) a complete collapse.

There’s also the doomsday scenario – the value of the currency plunges to zero and is totally worthless. This is also by far the least likely outcome. It happens in countries that experience a complete collapse of the government, or by foreign invasion that makes the country disappear from the map.

This is virtually what happened in post World War I Germany, and in post-Soviet Russia. Both currencies effectively went to zero value. However, many years after the respective collapses, people were once again trading in marks and in rubles. Moral of the story: Nations and citizens love their currency! Even after a period of complete monetary breakdown!

How Bad Could Things Get?

This isn’t something I want to spend a lot of time on as I think we can all imagine that it won’t be at all pleasant. Simply put, 21st century America transacts business in dollars – we don’t know any other way. Except, of course, non-monetary trades of goods and services which is hardly worth mentioning.

Coming to grips with rapidly rising prices is very much like trying to catch a greased pig . . . no matter how hard you try you will always be behind. And the transition over to a barter-based economy will be longer, slower, and far less efficient than we can ever imagine. And in point of fact, the vast majority of the American workforce are hardly in a position to barter.

Okay, let’s not beat this part to death – you get the picture. It’s not pretty.

A Dollar Collapse is Not Inevitable

No discussion of a dollar collapse would be complete without considering that it may never happen. Here are some reasons why:

  • The dollar is the world’s reserve currency – there is no suitable replacement now or even on the horizon. This allows for much greater currency distortions.
  • We have been experiencing a very slow dollar collapse for the last several decades. As dysfunctional as that is, it is also entirely possible that it could go on for many, many more years. Let’s face it – we’re kind of used to it.
  • The country might have a shift over to greater financial responsibility – the debt problems don’t necessarily have to be eliminated as much as we need to start heading in the right direction.
  • The development of a new technology, or a combination of several, could unleash a wave of economic growth and capital formation that would minimize current imbalances.
  • A major war. For whatever reasons, nations seem to better tolerate hyperinflation and crumbling finances during war time.

A dollar collapse is far from certain. Any of these conditions – and a few others – could prevent it from happening.

How to Protect Yourself During a Dollar Collapse

When you consider the circumstances that can either cause or prevent a dollar collapse it is absolutely clear that it is completely beyond our control at the individual level. Whatever the outcome, all we can do is prepare and try to do our best to live within conditions as they are. Here are some suggestions on what you can do if a dollar collapse were to occur (remember, not saying it necessarily will):

1. Put your trust in God.

It is regrettable – but true – that we may never put our trust completely in our Heavenly Father more than when it seems as if the walls are collapsing around us. And that is exactly what a dollar collapse will look and feel like. No matter how bad things get, God can guide us through the worst of it in ways that we can’t imagine. This is a good time to remember that God is bigger than our problems, even if they’re at the national level.

2. Develop hands-on job skills.

Most discussions of a dollar collapse center almost exclusively on how to preserve your investment portfolio (or savings) from the collapse. But most of us will have a far more basic problem – how will we make a living? Traditional jobs will disappear quickly, so think of skills that will enable you to either grow, build, or fix things. Growing food, generating power, repairing cars and computers, or even building (very) inexpensive homes will enable you to barter. Needs will be basic so the possibilities are pretty wide open.

3. Save up all the money you can now.

Even in a currency collapse, having money saved will be an economic virtue. At a minimum, you’ll need to have cash available to cover living expenses until you can figure out how to make a living. You may also need cash in order to help you retool to make your living. Of course, depending on if there was a partial or whole dollar collapse, this advice may or may not come in handy.

4. Have some money in precious metals.

When it comes to currency collapse, putting your money into precious metals is a default recommendation. I’m not completely convinced this will turn out to be true, but between gold and silver you might want to go with silver. It’s lower value will make it more practical as a barter asset. Just remember that a currency collapse will cause all types of distortions, some of which can have a negative effect on precious metals. Buy some, but don’t overdo it. Precious metals alone are unlikely to completely insulate you from the fallout of a dollar collapse.

5. Get closer with family, friends, church, neighborhood and community.

Crisis always brings us closer. We may not feel as much of a need for people and involvement during times of prosperity, but they’re God’s blessing in a disaster. We’ll need people and community to help and to be helped by, to barter with, and to entertain ourselves in ways we can no longer afford to.

What are your thoughts on a dollar collapse? Likely, unlikely, impossible? And if you think it is possible, what should we do to prepare for it? Leave a comment!

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  1. Vosburg

    the last three years I have been preparing for the possibility, the only thing I am sure of is taxes keep increasing………personally electing to live off savings instead of unemployment as I continue to persue work, not easy and most likley not smart……as I continue to pay these crazy unemployment benefits and technically unemployed myself…yet I have no income from such benefits (so called entitlements)…….the tax system is mis-aligned

    • Kevin M

      Hi Vosburg–It’s kind of ironic – higher taxes might actually make a dollar collapse less likely because it syphons dollars out of the economy reducing the active money supply. It starves out inflation in a sense.

  2. Judah

    Jesus is on His way to rapture the Church.
    Will we be ready for His coming? Have e been good stewards of the resources He’s given us?
    How hard are we working to spread the gospel, or are our lives filled with personal
    vendettas? Will Christ say to us well done my good and faithful servant or depart from Me
    ye workers of iniquity? Something to thunk about.

    • Kevin M

      Hi Judah–No matter what happens – good or bad – we’re to be “at work in the field”. As believers, we should never forget that, even in a deep crisis.

      It’s possible that Jesus will come in a dollar collapse, but as a believer I avoid that thought as much as possible. If we declare that Jesus is coming whenever crisis comes – and he doesn’t – we might weaken our witness to the world.

      We’ve had the fall of the Roman Empire, the Great Depression, two world wars, nuclear weapons, the fall of the British Empire, Y2K, and 9/11. I’m not saying Jesus isn’t coming, only that we can’t predict when, nor can we base our predictions on human levels of crisis.

      I think God intends for us, yes even the believers, to experience these events. I don’t claim to know why, but I do believe that crisis tends to strengthen believers, and create new ones.

  3. Marenda

    I think this is a very wise and timely column to write. I would like to see more discussion on how to survive in worse case scenarios. ie: should you keep chickens, learn to garden, make an outdoor oven, keep a clothes line going.

    Praying that nothing really bad happens, I still belive that God expects us to plan in case we need to survive unforseen difficulties and perhaps help others too. Our family has been running worse case scenarios in our home. If we had to for a short or long period could we live in and heat only the family room. I think these are very worthwhile discussions.

    Could you further discuss what jobs could be helpful in a total collapse?

    • Kevin M

      Hi Marenda–I agree that God expects us to plan for the future as well, but in this case we’d be talking about a range of possibilities that’s difficult to wrap our arms around. You’ve made some good suggestions, but I think it would help to specifically study what people in the former Soviet block did in the 1990s, as well as in places like Argentina that has experienced this more recently. Barter and basics seem to be the way to make a living.

  4. Trent

    I rolled my eyes when I saw the topic of this post in my RSS feed. However, having read it, I believe that it is as good a general primer on the topic as I’ve seen, particularly in this space restriction. Well Done!

    • Kevin M

      Thanks Trent! I tried to keep it basic and not overkill on my personal biases.

  5. David Rakers

    I believe God is bigger then our problems even when we caused this ourselves. I think of the scripture where Isaac sowed in the land when there was a famine. He reaped a 100-fold. Why? because is God is God during good and bad times. So having said this: all results and outcome are because we have left God out: schools, economics, work, politics. I strongly believe that when we return to Him, He will help us through. USA will be given a technology & solutions, a new energy form. So let’s go back to Him and go up! Just repent and return to God.

    • Kevin M

      VERY well put David! That’s why “Put your trust in God” is first on the preparation list. Even during the Depression, there were people and entire communities that thrived. God can and will intervene in our affairs, and we should never give up hope. Ever!

  6. Nancy

    Psalm 125:1 & 2
    Those who trust in the LORD are like Mount Zion, which cannot be shaken but endures forever. As the mountains surround Jerusalem, so the LORD surrounds His people.
    As my husband says, “When all else fails, go back to the instructions.” As a student obtaining a BSBA at 53, I am learning more about dependence on GOD and it is helping us get out of the financial hole I dug us in trying to obtain a license in the medical field. When people are living in disobedience of GOD and contend to live their own way, GOD allows us until we blindly fall on our faces. Our need is the return to a right relationship with GOD instead of continuing in our blindness and ignoring our deepening problems.
    Before 2007 when our economy began to collapse, we were blindly buying bigger and better with credit because we had to have it “Right Now!” and financial institutions, auto manufacturers and other businesses took the risk in meeting the demand. Credit flooded the market instead of actual cash; therefore aggregate demand on the Central Bank caused it to flood the economy to keep the machine grinding. When the financial downfall hit, government leaders found their scapegoat in Alan Greenspan when Ben Bernake allowed us to blindly continue on when he came to the Fed seat in 2006. Under Mr. Bernake, the Fed dropped the interest rate to near zero to stimulate the economy by creating more disposable income so consumers gain confidence and spend into the economy. The Federal government did its part in bailing out the financial institutions due to all the loan defaults and The Big Three Auto manufacturers though TARP. All these events happened because of our love for the idols of money and stuff instead of GOD and His vision for us–Himself and the spread of the Gospel.
    We should be following the leadership of history’s first chairman of the Fed, a young Jewish man named Joseph who saw God’s vision and shared it with the government. Because he shared GOD’s vision, the country prospered during a historic Great Depression that brought other countries to Egypt. So far, the United States has not turned that direction, but is blindly continuing on the path of doing her own thing.

    • Kevin M

      Hi Nancy–That’s an incredibly thoughtful analogy and one that I completely agree with. As believers, we should trust that God’s plan is working through our culture and even through the world, and ultimately will be beneficial. “All things work for good for those that love God and are called according to his purpose” (Romans 8:28). We have to believe that!

  7. Kevin M

    Hi Kathy–The mortgage question is an interesting one. Real estate proponents here in the US have always maintained that you should take the biggest mortgage you can because the government will declare a debt moratorium if house prices collapsed (ie, side with the people). But that isn’t what happened here in the mortgage meltdown. The goverment bailed out the banks who had little mercy on borrowers.

    I agree, the Lord may be poking us trying to get our attention. I think the biggest keys will be to remain faithful and flexible. I know that sounds vague but the possibilities here are endless.

  8. Steph

    I am not sure when/how the dollar will collapse or even IF it will but I can tell you that in the last 3 or 4 years, the dollar doesn’t buy nearly what it used to buy. We pay at least $1 a gallon more for gas. Groceries are getting out of hand too. When I used to spend $50 at the store, I now spend $70 or $80. That is not even buying the same products due to high costs. We no longer have a cat (our old kitty died) so that expense is gone, yet we still spend $20 to $30 more a trip. We are both on Social Security and hubby gets a small pension. Thank GOD our landlord has not raised our rent. I know that is God too – He has given us favor with our landlord. We are so blessed in that way. We have no debt, also thank God! We are fortunate in those two ways but it is still getting more and more difficult to maintain our budget. Utilities have increased here – even water. Our city utility bill has increased $30 per month. The only “entertainment” we indulge in the internet and TV (we rarely watch that!). We rent $1 movies when the grandchildren visit too. It is not mentioned much on the news or even here (I am making an assumption and I apologize in advance for that) that our dollar has devalued greatly and I believe that is the main reason we see such costs rising in every area of life. Will this eventually lead us to a dollar collapse? I don’t know but the government fudging the numbers on inflation doesn’t help the public understand the reality we face now. All of us; not just those of us on a fixed income.

    • Kevin M

      Hi Steph–I think that the published inflation numbers – the CPI – is largely a fiction. But its easy to see why they do it. Social Security increases are tied to the CPI, and so are tax bracket increases. By keeping the CPI intentionally low, they pay less in benefits than the would if they used the real inflation numbers, and also make tax revenues higher than they would be. Confidence is another factor. If inflation is reported as 1-2%, the economy is called stable. If they report it as 5-7%, people dump dollars and the currency weakens. There’s little incentive to be entirely truthful on real inflation.

      We have a family, and the cost increases in food, gas, utilities and medical care can get overwhelming. We’re having to sub out food cholces to cover some of the difference, and it’s getting to be a real chore. But we’re blessed to have less expensive alternatives. I suppose that a vegetable garden and a chicken coop are not far on the horizon the way it’s going.

  9. Michael

    I like silver eagles and maple leafs.Silver, unlike gold, has never been forcably recalled under threat of prison via FDR executive orders. You think Ocommy won’t? LOL! ALL my savings are in silver. I started buying gold at 300/oz years ago and sold at 450 thinking wow I did great! Well find another savings vehicle that delivers 50%? Silver coin collecting has been a family hobby for 30 years now and with sound return in value. All family’s should maintane at least 10% of net worth in real money as a hedge against the inevitable falling value of paper. Every big government in history has done this currency increasing buisiness as to create a way to spend money it doesn’t have and every time it ends in worthless script. Why does this look any different? It doesn’t. Look when some one, any one, can show me in the KJV where God says paper is money then I will put trust in it. God clearly speaks only of gold/silver as an exchange currency. What God has given works for me.

  10. Kevin M

    Hi Michael–10% in silver is a reasonable target I think. But a technical point on paper money in the Bible…paper money didn’t exist 2000 years ago, because paper didn’t exist. Also, while gold, silver and even copper are mentioned as money in the Bible, it isn’t an endorsement from God that they are legal money as a matter of faith. They were incidental mentions of the money of the time. Had paper money existed back them, it’s a good bet the Bible would have mentioned it in the same vain.

    That being said, the one thing that separates metals from paper money is their value as barter commodities in a crisis. That’s what made them money in the first place.

    • Michael

      Paper existed in Asia and yes before Christ’s birth and fiat money was used in Roman empire before Christ was born. Caesar did in fact use other media than paper as reproducible currency and did inflate ( devalue ) said currency with QE ( of his day ) to spend money he didn’t have to support Rome’s expansion. The collapse of said fiat money ( just as fiat as paper today ) enabled the final death blow and the fall of Rome. Yes the so called Barbarians came in but this was made possible by the preceding economic collapse. There are HUGE LESSONS in history. Please study it more closely my brother. Lastly and must importantly If God is perfect then his word is perfect. This means nothing need to be added because nothing needed has been left out. God is very clear on what to use for exchange. When God tells me differently then I will trust in paper. To excuse un backed valueless paper can be dangerously misguiding to others. Look all the miss uses by govts, like redistribution, buying votes, is financed ( enabled ) by this fiat monetary system of exchange. The only way to FORCE HONESTY back into govt is to remove this tool. Guns won’t do it. But as we the people CHOSE to STOP excepting this monetary system financial honesty returns. No one must ask the fed res permission to use real money and reject worthless paper. We see financially dishonest govt because we enable it. PLEASE consider STOPPING IT!

    • Michael

      NOT trust in paper: correction

  11. Michael

    Run on Banks now starting in Europe, Germany, France, Spain, Italy. Cypris may well be the beginning of the end of so called modern money ( fractional banking system ). Hyper inflation & Gold over 5,000/oz by Christmas. This really could be your last chance to protect your family from starvation. Got gold/silver, lead, food?

  12. Michael

    YEP see the dirty secret is the money honest people put faith in is a lie. Wisdom is needed to not be fleeced by banksters/govt. Fiat/fractional banking system was created by socialists for socialists giving govt absolute power over it. Cyprus can take it because govt money is owned by govt/banksters. You and the world have been conned. I have tried my very best to warn as many as would listen for 20 years now. Got gold?