Need help explaining coming collapse of the dollar

[fight4liberty]

I need help explaining to a friend of mine why we are currently not in just another economic downturn in which we will see the dollar recover from its present devaluation trend . He is a typically financially uninformed middle class family man that thinks I am being a doomsayer by telling him the dollar is not going to recover but in fact is going to collapse sooner or later on this particular recession cycle. I care about him and want to help him protect his family by getting out of debt and buying precious metals, etc. and get him to see the RP is the only candidate that really understands our country's financial situation and can begin to fix it.

He told me that there have been several other economic downturns in the past and that the Fed has always handled them and he doesn’t believe this current situation is any different. I told him what RP (and Peter Schiff and others) have said about things having gotten to the point where the Fed doesn’t have any “tools to fix it” this time but it doesn’t make sense to him because I don’t understand it enough myself to be able to explain it to him adequately.

I would like suggestions on what I should tell him specifically which will help him understand why this time it’s different and what we mean exactly when we say that the Fed doesn’t have the “tools to fix it” this time.

If you would prefer pointing me to another source to read or a video that would be good, too.

Thanks!!!

[Jordan]

First of all, betting on a collapse of the dollar and getting out of debt do not work together. Why move to get out of debt when the dollar isn't going to be worth anything. If you have $10,000 in debt, that is an amount that is fixed in dollars. So if the value of the dollar were to drop to one-tenth of its value, you'd really only have $1,000 in debt. Getting out of debt is for deflation and a rising dollar, not inflation and a dropping dollar.

This is something I posted in another forum in a response to another individual, but it fits for understanding how the economy and inflation work:


GDP = consumption + gross investment + government spending + net exports
You do realize that government spending is considered in GDP. Thus when the government spends more via war, stimulus packages, new social programs, GDP grows. Why do you think hundreds of social programs were created soon after the great depression? It was to propel GDP back to the positive and create new jobs for people with freshly created cash.

The fact is that each recessionary period is ended by inflation. Prior to 1913, panics crashed the market then as the correction ended, the markets rebounded. Economic slowdown throws malinvestment out and deflates prices.

Post 1913 we inflate the second the numbers turn sour:
http://www.investingblog.org/images/2008/235.png

Each recession brings a greater money supply, the money supply should stay stable. Today we're inflating again to keep the numbers up. Bernanke has pushed $384 Billion into the economy through the banks. This is $384 Billion that will go directly to the GDP even though it was created from thin air.

In 1970, the money supply was about $500 Billion. In 2004, it was $4.5 Billion. From 1970 to 2004 the growth in GDP was 1039%. Its easy to see how easily these numbers correlate, larger money supply= larger GDP.

[wgadget]

Maybe he could volunteer to watch Money as Debt and get paid $2 to give his opinion. Check out the Operation Education thread here. It's COOL:

http://www.ronpaulforums.com/showthread.php?t=140305

[eric_cartman]

watch this 5 part you tube lecture

http://youtube.com/watch?v=sDh3FNuwrTc

read crash proof by peter schiff

and read/watch this lecture by ron paul (video link near the top right)

http://www.lewrockwell.com/paul/paul303.html

... hope that helps

[eric_cartman]

ok... found the link i was really looking for. listen to this 1 hour interview with John Williams from shadow stats...

HYPER INFLATIONARY DEPRESSION - explained by John Williams

http://www.netcastdaily.com/broadcast/fsn2008-0412-2.mp3

[apc3161]

The value of the dollar, just like anything else, is determine by supply and demand. In todays world, demand and supply of a currency is determine by two things: financial trade and tangible trade.

Tangible trade is normal trade. When we buy more from abroad then we sell (trade deficit), we are flooding the world with dollars. As a result, the supply of dollars increases, and the demand lowers, so the value of the dollar drops.

The side of the coin is the financial side. In order to lower interest rates, the FED has to create credit, which increases the supply of dollars and therefore lowers its value. At the same time, when you lower the interest rate within the U.S, people do not want to invest in the US in dollars. They would rather take their money elsewhere to get better interest rate % returns. So the demand for dollar drops if the U.S interest rate is less than it is in other countries.

So if in the future, the Fed increases interest rates, and our trade deficit balances out, the value of the dollar will go up.

[fight4liberty]

...of you that posted replies. Great data! I do believe I've got it now! :)