Financial specialists had affirmed that only a miracle can prevent a banking crisis, that is likely to be triggered by missed payments all across the country. Regardless of when and how the Fed is committed to underwriting the whole US banking system to avoid unemployment rates to escalate of control, that means that the cost this monetary inflation can require is twice as much as the cost of the Lehman crisis.
On top of that, the Fed has still the intention to underwrite the whole market for financial assets by inflating the number of dollars being fed into it to maintain the confidence of the financial and economic sectors.
That could be the spark to the undermining of the dollar in foreign exchanges because this massive-scale monetary expansion will perform as a catalyst for foreigners to liquidate portfolio investments, US Treasury stock, agency stock, and the excess of bills and bank deposits that aren’t for reserve currency liquidity purposes.
Moreover, the Fed will still need to absorb of foreign-held Treasury and agency debt, and at the present time, the current total is already $6.77 trillion. In essence, the monetary collapse is unavoidable and will come sooner rather than later.
With all that said, the dollar purchasing power will be weaken not only by its erosion on foreign exchanges, but also by the public’s rejection as a mean of exchange. When the effects of the crisis start to become completely unbearable for the population, the Americans as consumers, are likely to prefer owning goods rather than keeping a monetary reserve. This will impact prices directly because the desire of holding less liquidity and having more goods will increase the value of common goods sharply, especially when the sanitary crisis can be used as an excuse for supply chain disruptions.
The new preferences for essentials, such as food and energy, rather than worthless money, will limit the response of manufacturers to increase production due to the lack of capital.
In this way, the inflation-driven crisis will create a currency that no one wants, making it lose all its objective value for transaction purposes. That is the fate of monetary inflation. When the public doesn’t trust the value of the currency anymore, they start to dispose of it as fast as they can, and will be too late to stabilize it again.
As Macleod remembered in his statement: “the text-book example was the great inflation in Germany’s post-war Weimar Republic. Then, as is increasingly the case today, the government relied on monetary inflation as its principal source of funding. The final collapse, when the German people no longer accepted the paper mark as money for transactions, took place between about May and November, taking roughly six months.”
He explains that “the time taken was a combination of an understanding of what was happening spreading throughout the economy and the foreign exchanges, and the time taken to obtain cash — which was in short supply due to the demand for it — and find the goods, which were also in short supply, to buy. It was described at the time as the crack-up boom, the final boom into goods and real values that marks the end of a seemingly endless inflation, being the complete breakdown of a monetary system.”
In this context, and considering today’s instant communications and payment systems, the dollar’s collapse is set to happen faster than ever before. And don’t think for a moment that prices will fall as the US economy plunges. They are certainly not interested in boosting consumer spending as they are in creating inflation to drive up demands and lower the number of goods, so people stay trapped in this dysfunctional system. Now more than ever, it is important to prepare yourself for this apocalyptic economic collapse.