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Dominick Edwards Professor: Malcolm Campbell English 1102 Date: April 21, 2014

Is Your Money Disappearing?

What the Collapse of the US Dollar Means to Your Money

What does it mean for the dollar to collapse? The collapse would be when the value of the dollar is worth nothing. We know that the value of the dollar has been decreasing over the past several years, but what happens when the dollar loses all value? First thing that would happen is the dollar would lose all value. Second the stock market would crash due to no trading with other countries. Third the banks will crash due to no stock trading and people withdrawing their money. If the dollar isnt worth anything people will try to purchase tangible goods with their money and trade those goods purchased for other goods. Lastly, this will cause a downhill effect for everyone. Meaning the dollar isnt worth anything, there is no reason to buy stocks because there is no trading, the banks crashed because there is no reason to keep money in the bank if it isnt worth anything, so we will all be broke and looking for something of value. What is inflation? Inflation is the increase in the level of prices for goods and services purchased. As inflation increases, every dollar you own buys a smaller portion of a good or service. Gas for instance, a gallon of gas five years ago was around $2.50, today a gallon of gas is around $3.60. So for that same gallon of gas we are now paying over a dollar more. This is due to inflation and the value of the dollar decreasing. As the value of our dollar continues to decrease all other goods and services will become more expensive to us.
Comment [DE1]: I added a paragraph to discuss the link between inflation and the value of the dollar.

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Most people go about their day to day business not caring about the value of the dollar. They just go to work and get a paycheck from time to time, pay their bills, and live day to day. But what happens when they receive that paycheck and the minute they take it to the bank and realize that what was a $1,000 paycheck is now only worth $800 due to inflation. One day they may get that same paycheck and it not be worth the paper it is printed on. John Crudele of The New York Post said, when our currency drops in value in relation to others, it makes goods produced in the U.S. cheaper in foreign markets. And products made overseas, including oil, become more expensive for Americans to purchase. Thats why the value of that paycheck dropped. Its not because you lost money or the bank charged you an outrageous fee, but its because all the foreign goods coming into America cost more. Our exports will increase due to the US trying to trade our goods for money, granted it will be for another countrys currency, and our imports will decrease drastically due to the dollar not being worth anything and we cannot purchase goods from other countries. So why is the dollar still holding value? Last year the governments debt reached an all time high causing chaos in the U.S. The U.S. had to sign a budget deal with several countries to buy U.S. Treasury Securities to help pay our debt. China being the largest creditor at $1.28 trillion and Japan as the second largest at $1.14 trillion. John Crudele said, The belief is that foreigners have no place other than the US to safely store their money, so they will put up with all sorts of financial injustices. And so far they have, except that the Chinese holders of nearly $1.3 trillion in our governments debt have been openly questioning the wisdom of investing in the US. What is a U.S. Treasury Security? It is a bill, note or bond that is US government debt. When a country buys a treasury security they are lending money to the US government
Comment [DE2]: This was repeated later in the paragraph, so I removed it from here.

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which is to be repaid over a period of time. It is the safest investment and considered to have no risk meaning you will be repaid interest and principle on time. So what happens if China and Japan decide to drop their U.S. security bonds? China and Japan could cause a collapse of the U.S. dollar, but wont because its not in their best interest. China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.", said Michael Pento, the President of Pento Portfolio Strategies, in a CNBC article. He goes on to say, In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement through its Finance Minister last week saying, "The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden. These countries do believe that it is bad that we have to trust other countries to help pay our debts and keep our dollar valuable. The dollar is the largest part of the world reserve currency. What is the world currency? The world reserve currency is currency held by governments and institutions in great amounts, for foreign exchange reserves and international trade. Countries with a large part of the world currency reserve can purchase imports cheaper because they do not have to exchange their currency. Both countries have argued that their native currency should become the world reserve currency, but the process would take a long time and a huge undertaking. Currently the US dollar holds the largest percent of the world reserve currency at over 60%. The euro is the second largest at over 25%. Could that change? Yes it is possible. The Chinese yuan is on a big rise now becoming the second highest traded currency. There is a CNBC report that came out Feb. 26, 2014, Yuan to supersede dollar as top
Comment [DE3]: I wanted to start this paragraph with a question, then use the paragraph to answer it. Formatted: Indent: First line: 0.5"

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reserve currency: Survey, it was a vote taken and 53% believe that the yuan will overtake the dollar as the largest reserve currency. If all of the countries would drop their U.S. security bonds and we fault on our debts, every country would start selling all the stocks and treasuries they hold in the U.S. and we would see a rapid drop in the value of the dollar. If this were to happen the U.S. would have to sell all exports cheap to try and make more money and all imports would cost more causing Americans to pay more for goods. Almost all oil is sold for U.S. dollars, but if the dollar were to collapse countries would want a new currency in exchange for oil. If the value of the dollar collapses we would have to buy that new currency with our dollars that arent worth anything to purchase oil to be brought into the U.S. We would lose more money in that sense and our debt would grow even larger than it is. Is there a new currency that the U.S. will adopt if the dollar collapses? I have found theories that there is a currency being produced called the Amero, which is currency meant for a union between the U.S., Canada, and Mexico. Also there is a rumor about using Bitcoin, which is an online form of money. Bitcoin is not owned or controlled by anyone and can be used by anyone, but it is not a form of real currency. Bitcoin has had its share of misfortune lately with Mt. Gox, the largest Bitcoin exchange, collapsing last month. Or as Boston University finance expert Mark T. Williams told state regulators in New York last month, Bitcoin is an experiment that needs to remain in the laboratory until it can meet the basic standards required to become a beneficial transaction currency." Bitcoin is still in the beginning stages of being used. Its like when PayPal was first introduced, only a few companies used it until it took off. Now almost everyone uses PayPal to handle transactions, and it is one of the most secure ways to send

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money. Maybe one day Bitcoin will make it to that point and some other idea will come about and try to challenge Bitcoin. Who knows, the U.S. may not have a back-up plan for currency. As for now the U.S. is safe. The US no longer has a debt limit. We can spend as much as people are willing to lend us. The White House thought that would be a good way in the months ahead to avoid another debt fight like the one weve just been through., John Crudele said. So as long as we have countries willing to lend us money, we can keep spending it. Its like having a black credit card with no limit. But is it worth it? At what price will it cost the U.S. if we continue going into debt not having a limit, and will we ever be able to pay the debt off? Will there be a collapse of the U.S. dollar? That is a question I cannot answer. Only time will tell. Michael Sivy of Time Business and Money said, The dollars decline over the past
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30 years has been far greater than most Americans realize. It has lost almost half its value against other major currencies since 1985 and is down 33% in the past 11 years alone. Indeed, the value of the U.S. dollar is lower today than it was in 2009 when the recession ended. The value of the dollar has been steadily decreasing, but the value can fluctuate. It could take decades or months for the value to become so low that no other country wants to trade in dollars. On the other hand in the same amount of time the value could rise causing all countries to want to trade in dollars again. This is one of those topics that you could argue either way and still not have a definite answer. Just because the value of the dollar is down it doesnt mean the dollar will collapse. In my opinion I do not see the dollar collapsing anytime soon. However, I do see the value continuing to decline and the price for goods and services to continue to increase. Here it is almost summer again, and every summer the price of gas increases. I am curious to see how high a gallon of gas will go this summer. This will continue to be a topic for a long time. No

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one really knows if the dollar will completely collapse, but we do know that inflation will continue to increase. All we can do is try to make more money to keep up with the rising prices of goods and services.
Comment [DE4]: I wanted to give my opinion and state my thoughts on what will happen.