Lately I keep my eye on the Dollar. It keeps on falling compared to other currencies. Today it seems to near a psychologically boundary of 80 on its index comparing it to multiple currencies. It makes many investors nervous because breaking 80 can cause a panic.

Screenshot of RTL Z (Dutch business program) – Dollar under extreme high pressure

I keep on remembering a great documentary 2 years ago: The day the dollar falls (Dutch but some English interviews) of the Tegenlicht series. It describes the events that lead up to the moment the Dollar is worth nothing and a Dutch woman has to pay her cab with some cigarettes. (But those also seem to be worthless lately with so many quitters) Bush closes the whole country for all foreign trade and the US has to live through a recession. In the documentary you hear some opinions of dutch and foreign traders,investors and millionaires that underline the message: It is unavoidable, the only question is how and when.

Stranded on an Island

The most striking metaphor was made by investor Peter Schiff. On an island are 7 people stranded, 6 Asians and 1 American. The tasks for survival are devided among them. One Asian fishes, one collects wood, one collects water, one does the cooking etc. And the American gets the most important task: He gets to consume all that is collected. The Asians only get the crumbs the American drops to survive so they can collect again the next day. The American keeps on saying he is the most important in this task, because he is the end in the line: He eats what is collected and without him the Asians task is nonsense. They work for him. But when do the Asians see that they get more when they get rid of the American and also have some free time to sun after collecting?

Debt is climbing

To keep their consumption in check the Americans have to borrow money every day. Currently that amount is 1.3 billion a day… And that money is borrowed from Asian countries like China so Americans can keep buying stuff from them so these Chinese can maintain the growth. On the point of writing this article the US debt is: $ 8,902,643,994,113.96 (Debt clock) . To see it grow I include the graphic that was made by the documentary makers 2 years ago when it was 1 trillion less debt. (Nice to see the effects of different political leaderships)

Well the scenario of the documentary is playing out much slower than in one day. We are still on 7 am on this episode of 24. (1.38 Dollar vs 1 euro) But the last pillar of the American economy is currently crumbling: the house market. The prices and rents are climbing and the stability of the obligations are slightly crumbling. The first time this kind of trusted funds shows instability.

The effect for the rest of the world

Well with a strong Euro nobody wants to buy European products. And many European funds have invested in dollar funds. So a sudden collapse is not attractive for the Europeans. (the cigarette scenario in which some banks may become broke) Also the Asian countries are not interested in a collapse because it would hurt their Dollar reserve they got when they loaned US money. China is slowly using the money reserves to bid for stuff like helping out Barcleys (a UK bank) to get ABN AMRO. One of our Dutch world wide operating banks which has been in our headlines the past few weeks. China slowly wants to get rid of these I Owe US.

But what about the US?

If you are a US citizen I would save something in a stronger currency like the Euro. Because the financial world is sure about it: a Dollar collapse is unavoidable. While a president is busy distracting it’s people with a costly war, the country is on it’s way to a collapse where it has to finally give up its high standards of living. What if the US can’t pay anymore for its 50% consumption of oil in the world and that is freed up for consumption by the rest. Currently the dollar is deflated slowly to avoid damage. But how does the world look like with one less economic powerhouse to manage the rest of the world? I think the world will become a better place with more balance in the forces. But we will see how this will play out.

Images and inspiration by the earlier mentioned documentary makers: The day the dollar falls