These two statements tell me that the gold standard and the silver standard are not reliable in themselve. The reliability of gold and silver currency depends not on any intrinsic value of gold and silver, but on faith that the government will not debase the coinage.
Silver and gold certificates, backed by specie, also rely on faith in the government, that it actually holds the reserves in specie to back the certificates.
Fiat currency depends on faith in the government that it will maintain sound monetary policies and will not just print money.
In short, all systems of government currency depend on faith that they will not be manipulated by the government.
Gremlins II. It was funny, but “good” will have be a judgement call. I liked it personally, though there are other bits I thought better than this particular line of dialogue. The “sound alarm!” bit in the elevator is my personal favorite.
And along these lines, buying and wearing life vests in the middle of Iowa is probably not a good idea. No matter how often Fox News contributors say it is.
I always find it amusing when people say they are prepared if things go South. These individuals claim that they have enough food and water to last for years and guns with lots of ammo to protect these supplies.
What they don’t seem to realize is that Preppers are going to stick out like a sore thumb. And more than likely there will be some level of local government still functioning. These government officials will surely come knocking and, at first, ask that your bounty be shared. If you refuse, they will accuse you of illegally “hoarding” food and demand that you turn over your supplies for the “good of the community”. They will return with enough arms and men to confiscate your supplies even if it means killing you and your family. Your lone AK-47 and hundreds of rounds of ammo are not going to make any difference in the outcome.
If things go so far South that there aren’t any government authorities around, your problems will not go away. Hungry, armed marauders will be roaming the area and will stop at nothing to get to your supplies. You may hold them off for awhile, but they will be back with more men and more weapons and will certainly at some point overwhelm your defenses.
All of these threads end up with similar conclusions: “If things are bad enough that you’d want gold and silver, you’ll want lead — lead bullets — instead.”
Utter dystopia as in a sci-fi movie can hardly be ruled out, but it is certainly possible to have “currency collapse” without utter collapse of democracy.
OP didn’t define exactly what is meant by currency collapse. During the 16-year period from 1969 to 1985, the U.S. Dollar lost two-thirds of its value; that’s surely not a “collapse.” During the worst 10-year period then, the dollar lost 57% of its value. I propose the following definition: The U.S. dollar is said to undergo “collapse” if during the worst ten-year period between now and 2050, the $ loses at least 95% (X%) of its value (as measured against a plausible commodity basket). @ OP: OK? Should we set X to 95%? or to 99%? (A dollar collapse of 85% - 94% doesn’t strike me as unlikely, but would that be severe enough to be called collapse?)
Even supposing a 99% loss, with the role of the Dollar partly taken over by some new E-Coin, I don’t think we should assume complete dystopia. 99% losses are not so unusual, and governments manage to hang on — indeed the collapses are often in response to authoritarianism.
I agree with this conclusion, but I disagree that a “currency collapse” even exists in this situation - unless wages and interest rates don’t track the currency.
Sudden inflation too fast for wages to keep up with are a big problem.
All the concern with rising prices does not consider that when I retired I was making a lot more than JFK made as president.
For the dollar to lose 99% of its value in a decade, the average annual inflation rate over the decade would need to be 59%, which probably means some years where the rate was well above 100%, and months where the monthly inflation rate was 15% or higher. While not as extreme as “hyperinflation,” such inflation would be very disruptive.
Anyway, I think we need to somehow define different types or degrees of “currency collapse” before we can pursue OP’s request to imagine the scenarios or their probabilities.
I take collapse to mean a sudden event. (A gradual transition to a different monetary system doesn’t count, for example.)
Our society heavily relies on a reliable currency. If a currency collapse happens (and on it’s own without anything like a nuclear war provoking it, which in turn on it’s own causes a lot of issues), then trade and commerce quickly grinds down to a tiny fraction of the current level. This means people will start starving. And starving people make lousy democratic citizens.
So, yeah, democracy is going to be in trouble.
The question I have is: What on Earth would provoke a sudden currency collapse just on it’s own without another major event like a catastrophic war starting it?
A long period of inflation or some such won’t “collapse” the currency. Things will change and times will be tough for many, but our society will muddle through.
It seems that most people here are expecting the status quo to continue indefinitely… I think that’s the one scenario that’s pretty much impossible. Nothing whatsoever got solved since the last economic crisis, all we did was more than double the national debt. The debts and deficits are continuing to rise at record rates, and this is during supposedly good times! In the good times, debts and deficits are supposed to be paid off.
The last economic crisis was one of puny billion dollar institutions with bad bets and bad debts. This next crisis will be a trillion dollar sovereign debt crisis.
Okay, so do you have an estimate (min/max/most likely) on when you expect this to occur?
Because “some day” (my words) is no good. When we’re talking about what to invest in (implicitly or otherwise, it seems like you’re saying “gold and silver”) the when matters. Because while I could buy a bunch of gold and silver today, just how much of my investment portfolio I’m going to devote to that and when has to do with how long it’s going to have to sit being invested in gold and silver, rather than, say, stocks, bonds, etc.
If you think I have ten years until the economic collapse, worst case scenario, then I guess I can afford to keep on earning interest in the market, accumulating buying power which I can then use to buy more gold later than I might otherwise be able to do today.
So, bottom line, when do you expect this collapse to occur, since it is so predictable?
I think that general argument has some merit, but limited.
If somebody says they are prepared to live on own for years in terms of a fortress like home with huge physical supplies then I think that argument has significant merit. Because those measures are likely, though not certain (say in a remote area), to attract attention either of bands of thieves or the ‘legitimate’ authority of a redistributionist government.
It’s not as good an argument against some physical gold as part of a portfolio for things going ‘South’. That would not necessarily be known to anyone else, and especially thieves. Often gold anti-bugs on the internet paint a lurid picture of thieves torturing you to give up your gold…but is it really going to help you if they torture you to give up gold you don’t have? How would they know?
There is no sure thing. Gold (or silver, though it’s much less practical due to much higher weight for a given value) is not a sure thing in any scenario, normal or South. But it could definitely tend to help in South scenarios. ‘Not a sure thing’ doesn’t logically equate to ‘don’t bother’.
As far as physical supplies, IMO that’s practically limited to some days supplies, maybe some multiple of the FEMA suggested 72 hours but I also doubt the expected value of preparing to survive autonomously for months or years from stockpiled supplies.
For guns though my view is somewhat similar to that for gold. A gun or few with 100’s of rounds is not going to defeat a hypothetical numerous and heavily armed gang. It could however quite practically deter a mainly unarmed group to go pick on somebody who lacks any guns, which is most people around where I live, in a generally gun-hating, left leaning urban area. IOW to paraphrase the joke, it’s not putting on sneakers hoping to outrun the bear, it’s putting them on to outrun your fellow camper also chased by the bear. I think modest gun armament is a positive expected value thing wrt ‘South’ scenario’s (including temporary ones, a disaster so big outside aid doesn’t arrive before completely unprepared people become desperate, Superstorm Sandy was all neighborly around here, but I wonder if aid hadn’t come for days more). Not to get into a general gun debate, one might acknowledge more good than harm in a having a gun for a breakdown in order, but still decide not to have one when considering the safety issues of having one around all the rest of the time. I think a reasonable decision could be made either way. I’m just disagreeing with the idea that a gun in the home is useless during a breakdown in civil order just because one can imagine antagonists who might completely outgun you.
Having a gun (or a collection of guns) and a stockpile of ammo, and a pantry full of canned food isn’t going to ensure your long-term survival. If the collapse is sufficiently dire that the country devolves into madmaxery you’re screwed no matter what, but a short-term stockpile and personal protection can let you hang on for several weeks or possibly several months while things recover, if possible. It’s not a bad idea to have an emergency stockpile or bugout-bag in any case, just for natural disasters. The last significant natural disaster to hit my area was the 1998 ice storm, and I admit suffering at worst mild personal inconvenience.
If you want a longer game plan, you’ll have to move to an area where you’ll be able to set up your own farm and/or fishery, solar- and wind-power, and preferably in a sparsely populated area of like-minded homesteads to try to ride it out the coming disaster in isolation. Good luck with that.
Right, and our wage system would not be able to keep up with that kind of inflation. Unless the minimum wage was reset monthly using a CPI adjustment. But if the government were together enough to do that, they’d be too together for the hyperinflation to happen in the first place.
Do you refer to recent tax cuts (except tariff increases paid by Americans) without attendant spending cuts?
I’d planned to [del]blather[/del] expound here on economic collapses but this does most of it for me: Economic collapse - Wikipedia
Possible causes are many and not simple.
How can we predict future collapses if we don’t understand past ones?
Also blockades and embargoes, massive fraud, and rampant alcoholism and addiction. Does the US fentanyl epidemic mark regional economic collapse, a consequence of Reagan-era and subsequent deregulation? I’ll bet a mega-tsunami could wreck an economy pretty well, too.
Economic collapse doesn’t always bring social collapse and anarchy, and survivalist ideas upthread are IMHO unreal. Chaos or not, guns and gold can’t beat organization. Ally with the best-organized local warlord or mogul to survive.
Better yet, avoid economic and social collapse. Vote-out the current nation-wreckers.
Let’s clarify our terms. Hyperinflation is defined as 50% inflation* per month*. At that rate currency loses 99% of its value in less than a year. Average annual inflation of 60% (monthly 4% rate) continued for 10 years also results in a 99% loss in value. Such an inflation would be far less than the “hyper” definition, but would still be very disruptive. More likely would be a self-reinforcing series of crises. And always, when discussing inflation, one must distinguish between unexpected inflation and expected deliberate inflation. (But if a central bank announces that its target is 8% inflation, public response might lead to further escalations.)
How would a 99% devaluation play out? Many possibilities; my “99% drop in a decade” was just intended as a catch-all definition. I thought we needed first to agree on what a “collapse” was. We can certainly imagine sudden bouts of inflation at a 10% or 15% annual rate; this might cause a panic, and flight from dollar-based assets. Panic would spread to the Euro, and so on. Or the panic might begin with devaluations in Asia. Or, if some E-Coin becomes popular, people might flee from regulated currencies and transact with E-coin. Is any of this likely in the next few years? Maybe not. But OP asked us to look 30 years into the future. If anyone thinks they can guarantee no currency collapse in three decades then they are … overestimating their prognostication skill.
I have no idea about the world’s financial system 30 years from now. I wish I could look 3 or 4 years ahead. BTW, what caused the accelerating inflation which began in the late 1960’s? Guess what! It was deficit spending during a period of high employment — Sound familiar? (OPEC didn’t raise prices until 1973, when the dollar crisis was well underway.) That inflation was eventually met by skyrocketing interest rates, and other austerity. Does that sound politically plausible today? At inflation-fighting interest rates, what is the interest on a $20 trillion debt?
We’re already in a world-wide “risk-free asset bubble”; AFAIK this is unprecedented. What happens when there is a recession in such an environment? The U.S. will be under huge pressure to “print money.” It will want to stimulate by lowering real interest rates, but at present the only way to do that without negative rates is deliberate inflation. Some Asian countries will seek to devalue their currencies. Countries like the U.S. may find ways to retaliate. If the U.S. is suffering from financial and political crises, will it remain the world’s safe-haven currency? Maybe, but not if the relation between inflation and interest rates is unacceptable. And even if the coming recession is handled with minimal problem, might there be another episode — given the uncharted economic paradigm we’re set sail in — over the next 30 years?
I think I’ll answer OP with “The probability is HIGH.”
I don’t know. War may not be unlikely: there’s already a very hot war in Syria. Ukraine? Afghanistan? The Subcontinent? East Asia? Trade war?
But depending on how you define “sudden”, I don’t think a major war is prerequisite for financial crisis. There was no war in 2007-2008, but the financial system still failed, and survived only because interest rates were dropped by 5%. There isn’t 5% to drop anymore.
I know I’ll be called “chicken little.” The global economy will probably muddle along for the next several years, even if the U.S. starts lagging. I’m just saying the probability of a very major financial crisis is much higher than Zero.
But you’re taking an extremist position. “It can’t continue in it’s present form therefore it will go away completely.” ignores a lot of other options that involve tweaks or more significant changes.
Things rarely completely flip like that.
Look at Germany at the end of WWII. Severe desolation and occupation. It still had a functioning currency! And Reichsmarks continued to be officially used until 1948 when the two Germanies introduced their own versions. (And the old currencies were converted to the new ones based on various formulas.) So, a change, not a total collapse.
What sort of chaos would the US have to go thru that would be worse than that???
This is an appealing argument, but the problem with looking at the longevity of precious metals as currency as proof of their future utility is that it fails to consider the fact that money is a technology, and we’ve made progress in that technology. It’s possible for that progress to regress, but it’s very unlikely barring some sort of cataclysmic event.
By analogy: bladed weapons have been used for combat for millenia. Yes, modern “firearms” has been successful for about 200 years. But past performance is no guarantee of future results.
It’s not that gold or blades are entirely obsolete; precious metals still have some niche uses in modern finance, just as blades still have some uses in modern warfare. But it’s just as silly to plan for future wars with swords as it is to plan for a future monetary system based on precious metal coinage. Not because they can’t happen. But because it’s not useful to do so from here.
For example, the modern international monetary regime might collapse if an asteroid hit the earth, or if a plague wiped out 70% of humanity, or if there were a nuclear war, or all sorts of real and possible threats. But your primary concern at that point would not be monetary.
The global economy will probably muddle along for the next several years, even if the U.S. starts lagging. I’m just saying the probability of a very major financial crisis is much higher than Zero.