The reset button

More thoughts on deflation and currency collapse--

The currency collapse itself is not really the problem for most of the population. Suppose for a moment that we could be done with the currency collapse instantaneously, but without the economy being destroyed. Dollars, whether they are dollars you have saved or dollars that you owe, suddenly cease to exist. Instead, paychecks magically begin arriving in the new currency, and we all switch over to the new money for all transactions.

This wipes out savings, but it also wipes out debts. It's like pressing a giant reset button, and most Americans would choose to push that button. Not the wealthy Americans, not the top of the middle class-- but most of us. Even middle class Americans with sizeable 401k accounts might push the button, since not having to make mortgage, car loan, student loan, and credit card payments would free up so much income that they could easily catch up as far as retirement.

We would certainly have to adopt, and immediately, a real safety net for the elderly. But with all US sovereign debt wiped out we would be more able to do this than we are now. Furthermore, if the new currency were backed by gold and/or silver, this would prevent the relentless inflation which has eroded Social Security payments year after year. (Yes, SS payments are supposed to increase with inflation, but then, the government lies its ass off about inflation, so it doesn't quite work that way.)

Without debts, government or private, we could resume real growth. If other nations were wary of doing business with us due to the recent currency change, all the better, as that might revitalize domestic production.

People lament hyperinflation because it "wipes out the assets of the middle class," but really, how many Americans have more assets than debts? And whatever assets they do have may be relatively inaccessible, e.g. tied up in the house they live in, the paid-off car they drive, or in retirement accounts they are decades away from tapping.

Again, most of us would gladly push reset. Or-- we would in this magical world I've just described. In real life the death of a currency takes a while and gets seriously messy. It brings the real economy to a screeching halt. The question is not "how do we save the dollar?" when it cannot be saved. The question should be how we transition as rapidly as possible to a gold- or silver-backed new currency, once the dollar finally begins to fall apart. The longer it takes, the more production is lost, and the more we all suffer.