The Demise of America July 2014

[max-greece]

max,

You certainly seem more knowledgeable in macro economics than myself and I appreciate your informative posts.
Let me ask you just a few questions.:

Oh boy - way to be called out - OK I'll do my best:

1. In the video, Stansberry makes the claim that there are multiple countries like China, India, Russia, etc etc that are in the process of unloading their US dollars in preparation for the supposed collapse. Do you believe that to be true and if so, what would that mean for their economies if the $ was no longer the world's reserve currency?

Well there isn't an obvious replacement for the $ as the world reserve currency. It would take about a decade to establish a new currency that engendered enough confidence to take its place. The Euro should be the front runner but that is as popular as Bacon - in a Synagogue.

Now there is a left field alternative in the wings - Bitcoin. That is a fascinating option - however there have been a slew of security issues over it and several hacks that rather undermine confidence. I can't imagine who might have engineered that....

Even if there were an alternative the hit from the collapse of the US economy would be massive - and probably barely alleviated by the shift away. US Debt levels are enormous and who do you think its owed to? Even if you were a country that holds no US debt its unlikely that you don't own debt in a country that owns US debt. Globalization means, in essence - no hiding place.

2. Would those same countries feel such a severe outcome if they were to successfully pull away from the dollar and create an all new currency?

Answered above. Short answer - no. Long answer - hell no.

3. Is it true that countries like India and China etc. are limiting the amount of US$ american tourists can exchange? Have you ever heard of this before?

It might be true - I haven't heard it - but that also might be for other reasons. They might be attempting to bolster or protect their own currency and restrict flows of foreign currency into local hands. This can be important for taxation reasons. Greece used to have strict controls on the Drachma both ways, in and out for reasons not at all related to the strength or weakness of the dollar. I suppose the first question is - is it just the dollar or the Euro as well. I'll be able to tell you in about 3 weeks as my wife is off to a conference there (China) towards the middle of the month.

4. Have you ever heard of the radical idea of debt forgiveness? Basically, the world starting from scratch? I once heard a complex version of this theory and always wondered why it would or would not work.

I think I already referred to this option although I called it a complete reset or something. If the dollar does collapse it may be the only option. Nobody seems to quite know how it would be achieved or how the winners and losers might react. How much consensus we'd get for this on a global scale I have no idea.

Aside from the will and overcoming the practicalities - which could be huge ensuring that there isn't a global run on a bunch of currencies is vital. We don't want a 1930's Germany situation where you turn up to buy a loaf of bread with a basketful of currency only for the shop-owner to turn it upside down in the street and keep the basket.

Then there are the issues of personal and business debt. How would these be handled? What about debts not owed to banks (trading accounts for example)? What about mortgages? How to you handle company stocks (which are a debt in essence)....

In summary - its a great idea in principle - but a fucking nightmare to implement. We may not have a choice but whilst we do I can't imagine this would be a popular option - even for debtor countries once all the ramifications become clear.