Some people may scoff at the idea of the American Dollar collapse. However, the collapse of the greenback may no longer be an “if” scenario but a “when.”
Even in the fictional world of the Tooth Fairy, we see the effects of inflation on the value of paper money. Decades ago, children would receive a few cents for a tooth, but now they can get up to several dollars.
Ultimately, inflation affects the purchasing power of the dollar. Since 1983, the value of U.S. currency has diminished by 63%. And as the last few years have shown us, anything is possible, including the fall of the U.S. Dollar.
That’s why we’re here to help you prepare if the dollar collapses. We’ll go over some of the reasons this may occur and proactive ways to protect yourself.
Typically, for the U.S. currency to collapse, a dramatic shift must occur in the public. As they begin to realize the weaknesses of the dollar, they may turn to alternative currencies. As a result, diminished public trust can be the first indication that the U.S. Dollar is on the decline. However, there are several other reasons why the value of the dollar can drop.
Despite the potential decrease in the dollar’s value, the U.S. currency still retains its strength and stability for several reasons.
However, regardless of the international strength of the U.S. Dollar, many still believe that the currency’s weaknesses outweigh its strengths. As a result, they believe these factors may contribute to the U.S. Dollar’s collapse.
Many individuals are no longer asking, “will the dollar collapse occur?” Instead, they are more worried when this may happen. Before panicking, keep in mind that it is difficult to predict such events. However, more importantly, it is normal for significant economic changes to occur, and we have even experienced and recovered from a few.
Nevertheless, the following are some potential scenarios that may occur:
Although many factors could cause the U.S. Dollar to collapse completely, it is unlikely this will happen. However, if you’re still wondering what happens if the dollar crashes, here are some of the consequences that can result:
The U.S. has sustained economic downturns before but has recovered quite well. Nevertheless, you can take proactive measures to prepare yourself in case the value of the dollar significantly diminishes.
U.S. Treasury Bonds (T-bonds) are fixed-income securities issued by the government to raise money for federal operations. Individuals typically choose to invest in T-bonds because the government fully backs them.
Treasury bonds are long-term investments ranging between 10 and 30 years. Until the account reaches maturity, the owner is paid periodic interest every six months. Typically, the interest is a fixed rate that is a portion of the principal. Once the T-bond matures, the principal amount is returned to the investor. The individual will be charged federal taxes on the interest earned but is exempt from state taxes. T-bonds are also relatively liquid, meaning the funds can be utilized before maturity.
Individuals who are worried about the decline in the value of paper money may choose to invest in precious physical metals. Unlike stocks that retain assets electronically, precious metal investors purchase tangible gold and silver assets. As a result, precious metals can retain their intrinsic value even when fiat currency or stocks decline during a dollar collapse. Additionally, the value of gold has steadily risen, with a 44% increase from 2016 to 2019.
There are many options when choosing to invest in precious physical metals, including coins, bars, and IRA accounts. For instance, individuals can buy gold, silver, platinum, or palladium coins and bars to store at home. Also, you can roll over your traditional IRA account into a gold or silver IRA. With a gold IRA, your retirement funds will be used to purchase an equivalent amount of IRS-approved gold.
Reserve currencies are considered safe-haven currencies because they are used to conduct transactions and invest in the global market. As a result, you may choose to invest in one of these currencies to protect yourself if the dollar collapses.
You can invest in a foreign currency CD for a fixed term and at a fixed rate. Typically, the longer the term, the better your interest rate will be. Additionally, CDs usually have higher interest rates than traditional savings accounts. If the dollar collapses and your chosen foreign currency rises, your return on investment may be higher.
Like T-bonds, you can also invest in foreign government bonds. You will need to convert your U.S. Dollars into foreign currency to purchase the bond. Interest will then be accrued in the foreign currency. Once the bond matures, you can withdraw the money and convert it back to U.S. Dollars.
As of 2021, the average American has $90,460 in debt. It goes without saying but paying off debts can help you retain as much of your hard-earned cash if the American Dollar collapses. Begin by assessing your finances to determine where you may be overspending. These costs can be cut down, and the money can be allocated towards paying off your debts.
Depending on the types of debts you have, consider repaying the small-dollar, short-term ones first. Or you may choose to pay down debts that have high-interest rates. Nevertheless, consolidating debt can help you retain liquidity in the event the U.S. Dollar collapses.
Investing in and renting out a fixer-upper- or single-family home can be a good way to earn passive income. In the event the dollar begins to lose its value, you will likely need to find alternative sources of income to maintain your lifestyle. Rental properties are a relatively safe investment option because homes appreciate and are in constant demand. As a result, investing in real estate can give you an added revenue stream to help protect you against dollar collapse.
The U.S. has experienced dramatic economic declines in the past, but it has always recovered. Therefore, it is unlikely that the U.S. Dollar will completely collapse. However, it is always a good idea to protect yourself if the dollar value declines. Some proactive steps include lowering debt, investing in precious physical metals, and purchasing government bonds.