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The US Dollar Must Collapse But the US Economy May Survive

I believe we have reached a critical point that it is no longer possible to salvage the US dollar as a fiat currency. A sudden and abrupt collapse of the US dollar is now just a matter of time. Mean while, the US economy itself will be able to survive the collapse of the dollar. There has been heated debate on inflation versus deflation, but there is one aspect that neither side of the debate has talked about. That one aspect that is not being talked about is the one thing that sealed the doomed fate of the dollar. Let me explain.

I grew up in a Marxism view of what a beautiful and perfect social model socialism, and the communism is: Eevery one works hard; no one will be left hungry or sick; technology will be so advanced and the material supply will be infinitely abundant that every one will get everything he/she needs, so greed becomes unnecessary. I was also taught that the universe is infinitely large, so of course there could be infinite material supply. But I began to question the infinite world view once I learned how to crunch numbers.

Now I know, the universe is finite, the world is finite. Everything has a limit.

Those of you grew up in the western world was taught similar fairytales of a world where all the animals live together in harmony, and there was a Santa Clause with enough toys for every children of the world, and that Darwin was wrong.

You should know, Darwin was right. The world is a finite place. Animals eat each other. Only the fittest will survive. And no there is no Santa Clause. This coming Christmas a lot of children will not receive their toys. Many will go to bed hungry.

President Obama: Socialism does not work. How I wish every American can enjoy the best health care, the best education, and the best quality of living standard, and that the government takes care of every one and gives every one a job. But that is impossible, because the world is a limited place with limited resources.

Everything has a limit!

That limit includes a government's ability to collect taxes, provide services, and borrow money from the society. The US government can print an infinite amount of money. But that does not mean you have an infinitely amount of money to spend or to borrow. The more you print, the less the money is worth.

The government, is a hired sheriff in town. The people in town decided they need a sheriff to maintain social order. So they pull together some money to hire a sheriff to patrol the streets. This is what a government does: collect taxation and then use the money to provide security and social services and defend against external invations. The government can only govern with the people's consent. The people consent being governed when they feel the tax they pay is well worth the protection and service they receive from the government.

For the past year, the US government spend more than $1.4 trillion than the tax revenue. So what service did we the people receive from Uncle Sam, for the price tag of $1.4T: Any road expanded? Any bridge built? Any new school opened? Any new park built? Nope, $1.4T simply gone, without as much as a splash of the water.

When people are upset with the government, it's shown in the votes. Fear not the votes on paper, fear instead the votes on feet. Jim Rogers has voted with his feet. Rich Americans have voted with their feet and their money. Why should they stay in America when the tax they pay is not worth the social services they received?

The money is flowing away from American soil, to seek better opportunities in overseas market. Capital money has its own mind. It always want to flee hostile soil and go to the land of opportunity. This is how free market capitalism works. When the capital money is gone, job opportunities are also gone, and professionals, engineers and scientists with the most creative minds could also be gone.

Which makes the government's budget deficit worse, forcing the government to hike tax rate, which in turn forces more capital money and skilled professionals to escape American soil to seek better opportunities some where else. This is a vicious cycle of spiraling downfall.

Even worse, individual states could also vote with their feet, when they feel that the heavy federal tax they pay, is not worth the benefit of staying in the union. For example, Californians gets only 80 censt back for each $1 federal tax they pay. Not only that, 30M Californians collectively owe a share of $1.2 trillion in federal debts. The 30M Californians could collectively walk away from $1.2 trillion worth of debt liability, which instantly gives each person $40,000!!!

The US dollar is a debt based fiat currency. It's value, backed by the full faith of credit of the US government, is based on the credibility of the US government's ability to collect tax and pay off the debt. The world is losing faith in the credibility of the US government to generate a high enough tax surplus to pay off the debt. Because massive taxation could only trigger massive exodus of market capital from the USA, collapsing the economy. Therefore, the collapse of the dollar is all but inevitable now.

What about the US economy? The economy will suffer pain from a collapsing currency. But had Weimar Republic destroyed Germany? The country survived hyperinflation, survived the complete defeat and total ruin from World War II, and survived the split into two for 45 years. It is still today one of the strongest economy in the world. The country survived because there were some good German people left.

I believe the US economy will survive and prosper, because America still has something the world want from us. We have the best technology, the best computer companies, best aviation products, best agriculture, best medical technology. The country has the highest number of Nobel Prize winners and best education institutions which attracts some of the best minds from all over the worlds. More importantly, we still have our best treasury, the US Constitution.

The dollar is doomed, but not the nation.