Ask HN: When or if do you think the dollar will collapse?
What are you doing to prepare for it if you think it will happen?
17 comments
I'm not sure a catastrophic collapse will happen any time soon (unless as a byproduct of some non-financial catastrophic event - e.g. a meteor hitting NYC). Since currency values are only relative to each other, any loss of value of the USD has to be matched by a strengthening of other currencies. The Euro is in no fighting shape, and an eccessive strengthening of the Renminbi would have catastrophic domestic effects in China (hence the Chinese government would simply not allow that to happen).
But... let's say you live in the US and want to prepare for it anyway? The major effect would be rampant inflation, especially for goods and services that are either imported or are highly reliant on imported goods. We import very little food (although we rely on oil-based fertilizers to make it), so I do not believe that widespread chaos and street violence ("kill your lunch, chop your wood, and carry a gun" scenario) are very likely.
To protect yourself from inflation, don't focus so much on your financial assets as on your personal and professional assets. A financial bet can go wrong (what if the USD strengthens instead?), while your skills and ability to generate income will always benefit you. Develop a freelancing business and related skills - salaries adjust slowly to inflation, so you get squeezed, while as a freelancer you can adjust your rates more quickly. Also develop a lifestyle that relies as little as possible on our major imported commodity, oil - a fuel efficient car, solar panels on the roof, etc.
But... let's say you live in the US and want to prepare for it anyway? The major effect would be rampant inflation, especially for goods and services that are either imported or are highly reliant on imported goods. We import very little food (although we rely on oil-based fertilizers to make it), so I do not believe that widespread chaos and street violence ("kill your lunch, chop your wood, and carry a gun" scenario) are very likely.
To protect yourself from inflation, don't focus so much on your financial assets as on your personal and professional assets. A financial bet can go wrong (what if the USD strengthens instead?), while your skills and ability to generate income will always benefit you. Develop a freelancing business and related skills - salaries adjust slowly to inflation, so you get squeezed, while as a freelancer you can adjust your rates more quickly. Also develop a lifestyle that relies as little as possible on our major imported commodity, oil - a fuel efficient car, solar panels on the roof, etc.
This current crisis felt like we came to the brink of hyperinflation, but managed to scramble through it without quite tipping the balance. Nothing is fundamentally fixed, though, so I expect the next big crisis 5 or 10 years down the road to end with the revaluation of the dollar, Zimbabwe style.
Gold is overhyped right now -- anyone buying gold at the moment is a fool -- and, as a rule of thumb, any commodity that people watch like a hawk (gold, silver, oil) is going to have second-order effects that aren't necessarily correlated with supply/demand and isn't a very safe bet. That said, a lot of other less-watched commodities will be the first in line as newly-printed money trickles out into the economy and fuels an artificial manufacturing boom: copper, zinc, maybe some of the catalyst metals like palladium (too volatile for me), iron/steel to a far lesser extent (again, too volatile for me). If I'd had the money at the time to follow my gut in 2008, I would've made a killing on copper alone -- and if I'd put some into platinum, one year ago, pre-auto-bailout, I'd have made a very comfortable one-year return (on the order of 250%).
Gold is overhyped right now -- anyone buying gold at the moment is a fool -- and, as a rule of thumb, any commodity that people watch like a hawk (gold, silver, oil) is going to have second-order effects that aren't necessarily correlated with supply/demand and isn't a very safe bet. That said, a lot of other less-watched commodities will be the first in line as newly-printed money trickles out into the economy and fuels an artificial manufacturing boom: copper, zinc, maybe some of the catalyst metals like palladium (too volatile for me), iron/steel to a far lesser extent (again, too volatile for me). If I'd had the money at the time to follow my gut in 2008, I would've made a killing on copper alone -- and if I'd put some into platinum, one year ago, pre-auto-bailout, I'd have made a very comfortable one-year return (on the order of 250%).
I'm making a lot of web sites just in case.
It can have a catastrophic effect on the web. Javascript validation would not be able to handle all the digits. I wonder how the Zimbabweans handled it?
Seriously don't worry. It will have to adjust sometimes to reflect the real economy and the deficit. I lived in South Africa for quite a few years. At one stage the Rand halved its value almost overnight. (Big changes happen overnight) and lost more gradually over the years. It did not affect the 'buying power' in the country though. So unless you want to get up and go to Europe keep your money invested in the US. It is a great country and the economy has a tendency to re-adjust quickly. (By the way in Europe they worry similarly about the Euro).
If you have a lot of dollars under your pillow change some to Chinese Money. At worse you can go for a holiday there!
Seriously don't worry. It will have to adjust sometimes to reflect the real economy and the deficit. I lived in South Africa for quite a few years. At one stage the Rand halved its value almost overnight. (Big changes happen overnight) and lost more gradually over the years. It did not affect the 'buying power' in the country though. So unless you want to get up and go to Europe keep your money invested in the US. It is a great country and the economy has a tendency to re-adjust quickly. (By the way in Europe they worry similarly about the Euro).
If you have a lot of dollars under your pillow change some to Chinese Money. At worse you can go for a holiday there!
The US is perhaps the most import-dependent nation on Earth. If the dollar drops in half, prices for many physical goods will basically double soon after, reducing buying power within the country, unless credit simultaneously expands 2X (which is what's been happening since ~2001 to maintain our illusion of wealth).
Assuming the rest of the world will not react. The 'exporters' will have a problem and since now they will import less dollars their own currencies will re-adjust otherwise the US will start becoming an exporter of physical goods, industry will be re-vitalized and the cycle will be reversed.
What industry? That sector accounts for less than 20% of US-GDP.
Besides that, if the dollar becomes worthless, how will your "industry" pay for raw materials that have to be imported?
Of course, you can at least buy oil in dollars ... but what if that changes, too?
Besides that, if the dollar becomes worthless, how will your "industry" pay for raw materials that have to be imported?
Of course, you can at least buy oil in dollars ... but what if that changes, too?
I can't predict when. I think it will, at some point, but I can't tell whether it'll be a gradual slide or a catastrophic panic.
As for what to do about it - own assets that generate continual revenue streams denominated in foreign currencies. International bonds are the obvious ones, but stocks of companies that make most of their revenue abroad also work well. Paradoxically, that means the S&P 500 is a pretty good bet: most of the top American companies make most of their money outside of the U.S.
As for what to do about it - own assets that generate continual revenue streams denominated in foreign currencies. International bonds are the obvious ones, but stocks of companies that make most of their revenue abroad also work well. Paradoxically, that means the S&P 500 is a pretty good bet: most of the top American companies make most of their money outside of the U.S.
I don't think the dollar will collapse, if it does however many people other than the US need to be very worried.
If I'm wrong: I live in the mountains have plenty of trees an axe, a gun, and a stove.
If I'm wrong: I live in the mountains have plenty of trees an axe, a gun, and a stove.
Lots of guns and canned food. Works equally well for zombie outbreaks and post-nuclear apocalypses too.
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Please define 'collapse'.
Galloping/Hyper inflation. Extreme devaluation of the dollar.
0% probability in the next five years.
Your question is like those who boo sports players when they have a bad year. An economic downturn is not uncommon anywhere and having one now is just letting the wolves howl at the moon and salivate. The best players bounce back and so will the economy and the dollar. All this has happened before, many time. It would be unwise to bet against this track record.
Please don't use sports as analogy to economics, politics or anything else, unless there is direct connection. Thank you.
i guess gold and silver are the best bet.. though i dont know its a right time to buy right now as prices has shot in last couple of years... dollar crash may also result in to stock-crash and someone who can predict this can also buy 'short' ETFs. Dollar crash will also create demand in Oil which in-turn will increase the oil price. all these factors can help anyone to shield from now. Also one can start investing in forex, many smart immigrants have started investing in their home countries so that there is some risk mitigation.
Interested readers can also read "10 Bubbles in the making" @
http://www.businessinsider.com/bubbles-in-the-making-2009-9#...
Interested readers can also read "10 Bubbles in the making" @
http://www.businessinsider.com/bubbles-in-the-making-2009-9#...