Three years ago, not only did I never think about the collapse of the dollar, I wouldn't have understood it either. As I began to learn just how the dollar worked and what was coming toward us at a breakneck pace, a light dawned and at that point I understood. It is difficult to explain to some people because they wholeheartedly and with no thought support the Democrats and whoever leads them. To others, they have the mindset that "This is America, the dollar will never collapse." To either one of these sets of people, it will be almost impossible to explain it to them, don't waste your breath. For the rest, who for whatever reason, just aren't paying attention, it's a different story.
WARNING THIS IS AN OVERSIMPLIFICATION!
Ask these questions.
1. What gives that piece of paper you call a dollar value?
2. Why is it illegal to print your own dollars? How much are dollars that you printed worth? Why?
When America was on the Gold Standard, each of those dollar bills represented a percentage of the Gold that we had stored in Fort Knox. So in the interest of making this easy, for each gold bar we had stored, we had 1,000 one dollar bills. (see warning) You knew back then that for each $1,000 we had in circulation, we had one gold bar giving each of those bills 1/1000 of the value of that gold bar. The only dollar bills circulating were those that had the value of gold backing them up. Then we were taken off the Gold Standard, (for a number of reasons) one reason being that there were not enough dollars circulating. So we were put on the Silver Standard. There was more silver than gold so instead of each one dollar bill being a share of one gold bar, now there could be two or three dollar bills for each share of a silver bar. The amount of dollar bills circulating increased without an increase in the value of each dollar. Then we were taken off the silver standard and put on the "backed by the full faith of the United States Government" standard.
So now each one dollar bill is worth what the US Government says it is, sort of. Americans used to invest in America's future by purchasing bonds which financed wars and projects we did not have the cash in circulation to pay for. When we started selling bonds overseas to foreign countries, they were in effect, 'investing in America's future'. For each dollar used to buy a bond, ten years later, they would get $2.00. But we were off the gold and silver standards and now that $2.00 they got ten years later was worth $1.20.
Later, the foreign countries were 'investing in America's debt' not investing in America's future. The government, seeing that they could finance huge spending far beyond what they brought in in tax revenues began creating more spending programs and increasing our debt. Now America owes far more in debt than could ever be paid. The solution? Print more dollars to pay back the debt.
The problem? Now each dollar printed is worth less than the dollar we borrowed. So if we owed 1,000 one dollar bills, and we only had 800 one dollar bills, we would print 200 more. The result is then that when we repay the $1,000, it's only worth about $800. The people we owe money to are not happy. So what do we do? We print more money. now each $1,000 we pay back is worth $600. And so on and so on.
Here is where the collapse occurs. The people we borrow from cease loaning us the money for the massive spending our Country does. Now not only is our country not able to pay for all the spending with tax revenues, now we can't even pay the interest on the loans we have. So what do we do? We print more money. We hide the fact from most Americans that the value of their dollars is declining by flooding the market with dollars. The problem is now their dollars are buying 30% of what they used to be able to buy. The value declines to the actual value of the piece of paper the dollar is printed on.
There are other factors, but most people refuse to believe that the countries we borrow from will stop loaning to us. The fact is many of them already have. China recently sold 97% of our short term debt bonds they invested in. Russia, India, South Africa, Brazil, Thailand and even Mexico have all ceased using the dollar as a standard. Japan has not as of yet sold off their share of our debt, but they need money soon to invest in their tsunami and earthquake ravaged nation.
TARP failed, so we printed money. The stimulus plan failed, so we printed money. The value of the dollar is declining fast and the economy is sluggish, so we print money hoping people will spend it. Now they need more than twice the amount of dollars to buy what one dollar used to, so we print more money. Eventually as happened in the Weimar Republic in Germany and in Argentina the value of our currency declines throughout the day and is worth less in the afternoon than it is in the morning.
Hopefully this wasn't too confusing and hopefully the 'dummies' will understand and prepare.