Posted: 26 Apr 2015 09:34 AM PDT
Historically, when a nation's debt exceeds its ability to repay even
the interest, it can be assumed that the currency will collapse.
Typically, governments exacerbate the situation by printing large
amounts of currency notes in an effort to inflate the problem away, or
at least postpone it.
The greater the level of debt, the more dramatic the inflation must
be to counter it. The more dramatic the inflation, the greater the
danger that hyperinflation will take place. No government has ever been
able to control hyperinflation. If it occurs, it does so quickly and
always ends with a crash.
Although there are observers (myself included) who frequently discuss
what a reserve-currency crash would mean to the world, there is little
or no discussion as to how this would impact people on the street level,
and perhaps that discussion should begin.
When currencies crash, the state often tries to float a new currency.
Sometimes, it's accepted, sometimes not. Generally, the people of the
country (and those trading within the country) move immediately to "the
next best thing." In 2009, when the Zimbabwe dollar crashed, several
currencies were used, but the US dollar was the clear favourite, as it
was the world's reserve currency and therefore the most "spendable"
currency.
Not surprisingly, the Zimbabwean government fought the use of the
dollar, as they wanted to retain control of the economy and the people.
People were therefore penalised for using the US dollar and other
currencies.
And that's what most governments do, but here's where that idea
usually falls down: First, the "black-market" currency is so desired by
the now-jaded citizens that they do all they can to avoid the new
official currency. Soon, most transactions, although illegal, are
undertaken in the black-market currency. Second, since no one really
wants the new currency, even the political leaders are soon using the
black-market currency.
Ultimately, the black-market currency is legalised (since it's the
only truly workable solution), and it often becomes the unofficial
currency, if not actually the official one.
First, the Euro Crash
It's safe to say that the EU, the US, and quite a few other
jurisdictions are nearing currency crashes, and in all likelihood, the
euro will go before the dollar. So, unless the EU has already
prearranged a new euro, the US dollar might well be chosen as an
immediate solution to the problem, as the US dollar is presently
recognised and traded throughout Europe. Therefore, a relatively
painless transfer could be made.
Then, the Dollar Crash
However, the dollar, which is presently praised as being a sound
currency, is really only sound in relation to the euro (and some other
lesser currencies). Once its less stable brother, the euro, collapses,
the dollar will be exposed.
As the US dollar is a fiat currency and is on the ropes, the US (and
any other country that is using the dollar as its primary currency when
the time comes) will experience a currency emergency at the street level
that will be unprecedented.
The big question that is generally not being discussed is: The day
after the crash (and thereafter), what will be the currency that is used
to buy a bag of groceries, a tank of petrol, a meal at a restaurant?
Certainly, the need will be immediate and will be on a national level in
each impacted country, affecting everyone.
And Then...
I have discussed for some time that the US will be prepared ahead of
time with a new, electronic currency. This will serve three purposes:
It will allow the US government to blame paper currencies for the
crash, in order to distract the public from recognising that the
government itself is the culprit.
It will allow the US government to create a currency system that
disallows the holding of tradable currency by the population—that is, a
debit card would be created by banks through which all transactions must
pass, assuring that all transactions are processed by (and thereby
subject to the control of) a bank.
It will allow the US government to have knowledge of every penny
earned and spent by any individual or organization, allowing for
direct-debit income taxation.
If the US does institute such a system, US citizens will then become
the most economically controlled people in the world, overnight.
It's likely that a black-market system would spontaneously be created
by US citizens in order to bypass the new government system. A portion
of daily trade would occur under the table. It would unquestionably be
made illegal, and we can only speculate as to how prevalent it would
become: 10% of all transactions? 30%? Anyone's guess. Certainly, the
government would crack down, and penalties might become severe.
Elsewhere in the world, there would be greater freedom, but what
would their currencies be? There are many countries that presently use
the US dollar as one of their official currencies. After a crash, the
greater the link to the US dollar, the greater the loss of economic
freedom, although, in most such countries, the government is likely to
be less efficient than in the US, which would work in favour of the
individual.
Such countries would also have the option of switching from the
dollar to another dominant currency. With the euro and dollar gone, that
currency might be the Chinese yuan. The difficulty with this
possibility is that, presently, the yuan is not in common use on the
street.
Adoption of a currency such as the yuan would require a sudden switch
in monetary policy, complete with teething problems. However, recent
developments amongst the BRICS and others indicate that many countries
are already seeing the writing on the wall and are readying themselves
for the use of the yuan as an alternate.
A Return to Precious Metals as Currency?
A further possibility is taking place in Mexico today. Mexico is
remonetising silver. A one-ounce pure silver Libertad coin will function
in parallel to (and be interchangeable with) the existing paper peso.
Banks will value the Libertad daily, based upon the silver price. Thus,
Mexico will create a legal way for its citizens to protect themselves
against devaluation of the peso, whilst creating an internal protection
against currency crashes in other countries.
If the Mexican government remains consistent in its plan, it will do
more than simply help stabilise Mexico economically; it will serve as an
example to other countries that when the Goliaths of the euro and US
dollar fall, there is a very sound alternative.
Further, the more countries that follow this policy, the more silver
(and for that matter, gold) would become an international currency. It
would matter little to a petrol station owner in Canada, Australia, or
Chile whether his till was filled with coins marked, "Mexico," or
whether they said "Iceland," "New Zealand," or "South Africa." After
all, an ounce of silver is an ounce of silver, no matter what the
issuing country is.
As the Great Unravelling proceeds, we would be wise to monitor what
happens with the Libertad in Mexico and watch for a similar return to
precious metals in other jurisdictions. As this development progresses,
we might wish to consider that, whatever jurisdictions are the most
forceful in demanding the continued use of doomed paper currencies (or,
worse, transferring into electronic currencies), we may choose to store
our wealth, no matter how great or small, in a safer jurisdiction.
Further, we may choose to reside in a jurisdiction where a currency
crisis will be less likely to occur; to live under a government that
does not seek to monitor and tax our every economic transaction.
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