The Fall of Currencies and Empires

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The assumption among the majority of Americans is that the US dollar as the world’s reserve currency will maintain America’s political, financial and economic hegemony around the world for decades to come. But, if there’s one lesson to be taken from economic history, it’s that no currency survives the test of time.

As the economic crisis continued to deepen and affect nearly every nation on earth, many world leaders — from Europe to China — began discussing the replacement of the US dollar as the world’s monetary unit of trade. Dismissed by some as all talk, it should now be clear that the Russians, Arab nations, Japanese and especially China are actively moving towards reducing the dollar’s influence on global economic affairs, and in the case of China and Japan, replacing it altogether:

BEIJING – ChinaandJapanhave agreed to start direct trading of their currencies, officials announced during a visit here on Monday by Japan's prime minister, Yoshihiko Noda.

China is the world's second-largest economy while Japan is the third largest, and the currency agreement is part of a move away from using dollars. Chinese officials have said recently they would like to broaden the global use ofthe renminbi, also known as the yuan, and want to see more countries move away from relying on dollars as the worldwide currency.

They hold the world's largest foreign-currency reserves – China has about $3.2 trillion, while Japan holds $1.3 trillion – and any moves to reconstitute the makeup of those holdings could change the global currency map.

u201CChinese officials have made it clear that they believe the international economy is too heavily dominated bythe dollar,u201D saidCharles A. Kupchan.

Source: NYT

The United States has enjoyed reserve currency status for nearly a century, but our time may be quickly coming to an end. Some of the world’s previous reserve currencies survived for hundreds of years, so some may argue that the US dollar still has some staying power. However, the very same reasons responsible for the collapse of the aureus (Roman gold), dinarius (Roman silver), solidus, gulden and pound will be responsible for the downfall of the dollar.

(image via Zero Hedge and Classical Numismatic Group)

It’s simply, really. When governments spend more money than they bring in via taxation they are forced to devalue, sometimes very slowly, their currency. The Romans did it by reducing the silver content of their coinage, with some 95% of the precious metal being stripped from their coins by the time the empire collapsed in the 4th century.

From aHistorical Perspective: The US Dollar vs. The Roman Denarius:

Does the above chart look somewhat familiar?

It should:

What took the Romans nearly three centuries to accomplish, our Federal Reserve has done in less than one hundred.

Historical performance, of course, is not a true indicator of future results, but given that our nation’s central bank refuses to change its policies of quantitative easing and monetary expansion, and considering that the Chinese are attempting to completely discard the US dollar as a tradeable instrument, the dollar’s demise as the dominant global currency will come sooner than later.

On top of that, the United States has some $200 trillion in liabilities over the course of the next thirty years, making it the largest debtor in the history of the civilized world.

The fall of currencies and empires throughout history is a constant.

It is no different this time. Our fate, it seems, is sealed. In fact, the US dollar vs. Silver Dinarius chart comparison above suggests that a currency collapse is not some event that will take place in the future; it’s happening right here and now.

While we may not have yet reached a waterfall event in which the world as we know it comes to an abrupt end over a period of days or weeks, it’s really only a matter of time before complete confidence in the system is lost.

When that happens, expect the unexpected. A rapid meltdown of the US dollar will lead to an economic crisis never before experienced in the modern world, and will likely result in our worst fears coming to pass. Things like food shortages, interruptionsto the normal flow of commerce, a breakdown in lawenforcementand emergency response services, politicalupheavaland widespread social strife are unavoidable in such a scenario. As unlikely as it sounds, it is quite possibly the way it will all go down. Look again at the charts above. Do you think there is any way to avoid such an outcome?

The collapse of nations, especially super-powers, is never a pleasant affair.