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.
Reasons Why the Dollar Can Collapse
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.
- With steadily rising prices, the U.S. Dollar cannot be used to purchase the same number of goods and services. As a result, inflation can devalue the dollar as more money is required to buy the same products.
- Currently, the U.S. Dollar is the reserve currency of the world. Other nations use it to purchase commodities, such as oil. Recently, many countries, such as China, are also looking to obtain reserve currency status. As a result, this can diminish the dollar’s value if other currencies are used.
- Geo-political issues, such as the COVID-19 pandemic have caused several nations to incur more debt. As a result, this has negatively affected the economy and the value of the dollar.
- Increased money printing diminishes the dollar’s value, especially when it is not backed by gold. Additionally, this can decrease public trust in the U.S. currency, furthering the dollar’s collapse.
- Cryptocurrencies have gained in popularity and even threaten to displace paper currency. Many investors have opted for crypto as a decentralized alternative to the U.S. Dollar, which may ultimately lead to the greenback’s decline.
U.S. Dollar Strengths
Despite the potential decrease in the dollar’s value, the U.S. currency still retains its strength and stability for several reasons.
- For over 60 years, the U.S. Dollar has been the world’s main reserve currency. As a result, the dollar is used as the primary currency for international trade and transactions.
- Many other currencies are tied to the U.S. Dollar. This ultimately strengthens the currency’s value as it demonstrates international trust in it.
- As the dollar fluctuates to become more valuable than other currencies, the price of imports becomes less expensive. Additionally, many foreign companies conducting business in U.S. currency benefit from increased revenue. As a result, this further bolsters international trust in the dollar.
U.S. Dollar Weaknesses
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.
- The U.S. Dollar is not backed by gold. Additionally, the government’s increased printing of money has negatively affected the economy and the value of the currency. For instance, the U.S. printed $20 trillion between March and June 2020. These factors have caused major concerns for bankers and the public, leading to their lack of trust in fiat money.
- With more countries gaining reserve currency status, the U.S. Dollar is beginning to lose its international foothold on trade. As global transactions rely less on U.S. reserve currency, the dollar can experience a dramatic decrease in value on an international scale. However, it is unlikely that the U.S. Dollar would be the least valuable currency.
When Will the Dollar 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 unrealistic, a large-scale global catastrophe would need to occur to cause rapid inflation and money printing. For instance, a global war could cause a dramatic decline in the dollar’s value.
- Another far-fetched scenario that could collapse the U.S. Dollar would be the shift to a digital currency. This transition poses potential security risks that could jeopardize the banking system. As a result, individuals may lose complete trust in the U.S. currency, causing it to decline.
What Would Happen If the Dollar Collapsed?
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. could experience unprecedented hyperinflation
- The U.S. Dollar could no longer be the main reserve currency
- The devaluation of the dollar could result in a depression
- The U.S. could no longer afford high import prices
How to Protect Yourself from Dollar Collapse
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.
Invest in a U.S. Treasury Bond
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.
Invest in Precious Physical Metals
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.
Invest In Other Currencies
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.
Pay Off Debts
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.
Invest in Real Estate
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.