Will The US Devalue The Dollar?

Tyler Durden's picture

It is well-documented by economists at SocGen and elsewhere, that the world has now entered a race to the currency bottom. Ongoing recent actions by the BOJ, ECB, SNB and all relevant central banks have made this a near certainty. Yet the biggest question mark is how the US will approach the imminent dollar devaluation (and with many trillions in debt overhang needing to be rolled over, the Fed has two options: accelerated inflation or dollar devaluation) - will it be a gradual process or rapid and unexpected. A paper by Darryl Robert Schoon analyzes the various forces at play when evaluating the probability of a dollar devaluation. "Capitalism cannot function unless its constantly compounding debt is serviced and/or paid down. Today, the US, the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more, what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems...We are in what Stephen Roach, Chairman of Morgan Stanley Asia, calls the end-game, the resolution of past monetary excesses and imbalances, excesses and imbalances that reached never-before-seen heights in the last decade." Nothing too surprising for regulars, yet a good summary of the dilemma facing the monetary authority of the United States.

Via Darryl Robert Schoon


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Missing_Link's picture

"Will the US devalue the dollar?"

Will a bear shit in the woods?

Anonymous's picture

Will the US Govt shit on my porch? Yes, and hopefully just before a census worker shows up.

Anonymous's picture

Maybe in the Bretton Woods!:)

johngaltfla's picture

Actually, no.

Let me tell you the story of the 3 Fed Bears.

Papa Bear Volcker went into the home and grabbed the toilet paper after he shit in the taxpayer toilet and said, "This is better than the pinecones in the woods, but still not good enough, but it will just have to do."

Uncle Bear Greenspan went into the house next and said, "Gee, it smells like flowers. Did you really shit it up Papa Bear Volcker?" After he took a shit in the taxpayer toilet he rubbed up the toilet paper and said "This stuff sucks. He whipped out some fresh Benjamins, wiped, and said, "It's better than corncobs but not as soft as RMBS!"


Baby Bear Bernanke finally got his chance to hit the taxpayer head. He walked in the door after Uncle Alan left and yelled "My God Uncle Alan, what did you do, eat a banker and shit him out?" The younger Fed bear held it's nose and took a massive shit into the taxpayer toilet, so much so that it took 3 flushes to force it down the drain. Instead of going through the motions and trying the paper like Papa Bear Volcker or using fiat money like Uncle Alan, he looked outside and saw an American taxpayer and snatched him through the window wiping his ass furiously to insure there was nothing left. "Ahhhh, that's just right. I think I'll wipe my ass with the taxpayers for the rest of my life."


The moral of the story? When a Fed bear needs to take a shit, run like hell.

10044's picture

Question is "when", not "will". My guess within the next 18 mths, welcome to depression 2.0, GOLD bitches

Gold...Bitches's picture

GOLD bitches

hey, that's my line...

Hondo's picture

What have they done since there was a dollar.  We have a lot of data points that confirm their policy which has only accelerated since the 1970's.

Internet Tough Guy's picture


It's been an ongoing accelerating process for 90 years.

Cognitive Dissonance's picture


The devaluation started nearly a hundred years ago. The question should really be ......"Will the devaluation of the dollar accelerate exponentially or will it explode into a thousand pieces?"

faustian bargain's picture


"How fast will the US continue devaluing the dollar?"

Hughe Crapper's picture

Like a slushfund. They spend it faster than you can lay your egg...

Ivanovich's picture

Just curious.  But if all currencies are being devalued, do any of them actually become worth less to one another?

asdf's picture

no, of course not. That's why devaluation doesn't work.

nikku's picture

Wrong.  They all become less valuable when compared to the only currency that can't be printed: Gold.  Zero Hedgers are often arguing about inflation vs. deflation.  In the final analysis, gold is not a "hedge against inflation."  It is a clear sign of a loss of confidence in government--sometimes expressing itself as a good hedge against inflation (because we see the government QE'ing to infinity).  But it is also possible, that in a debt deflation, the value of money goes up--only not the money that can be printed--real money for thousands of years, gold and silver.  Maybe gold never gets higher than $1100, but because of massive debt defaults, the price of everything gold can buy drops massively.  This is a form of debt induced deflation, even thought the price of everything in dollars or euros will rise dramatically.  Don't get confused by being too dollar-centric.

carbonmutant's picture

This all works as long as gold isn't being alloyed with powdered tungsten.

faustian bargain's picture

No, that condition applies only if that sort of counterfeiting is not detectable, which it is, and directly affects the minter's/certifier's reputation.

carbonmutant's picture

 As long as individuals can afford the sophisticated equipment need to audit purchases or exchanges you can minimize problem. In real life however, most transactions involve much greater risk.

faustian bargain's picture

I don't think individuals need the equipment. I think minters, private certifiers, distributers, etc need to maintain their reputations and will do the appropriate testing.

dumpster's picture

i am sure this crowd will buy theb 400 oz bars lol

just buy the kuggerands , gold eagles, yadda,

of course thats a 1200 buck hit and most can not come up with 2000 grand

so this tungsten deal ,, is hardly a deterent .. why get cought up in something thaty most will never see,

of course some will never see a oz of gold leo lol

and silver eagles are still a plenty

Cursive's picture

This is what is overlooked by most observers. All currencies are relative.  The U.S. has its share of problems, but we are better off than the Eurozone, China and Japan.  We also have the biggest guns and that counts for a lot.

John McCloy's picture

  Yeah in theory nothing would stop the U.S. from seeming to run itself into the ground along with other currencies and economies while stealthily adding to their gold reserves for the next few years and when the time comes we cannot afford to pay our debt to China we simply say..."Do something about it".

Announce a new commodity basket backed currency and boom America is off to the races. If someone wants to begin a war over it..boom America off to the races. The difference is how will the opposing nation/s fund a war with a destroyed currency and economy? And do you honestly think they are not aware of the impossibility of them defeating the United States in a war? People can criticize military spending but in the end when you can wage war against every power in existence simultaneously and win I suppose the spending was not all too frivolous huh? Such is the benefit of geopolitical control of both the Atlantic and Pacific and the inability for our shores to be invaded.

There is no benefit to waging war and military spending if you cannot loot. I cannot see us spending all this money in the past decade "just in case". These guys want a war and they are going to get one sooner or later. If they can distort the MSM when all the economic data is worsening and wage economic warfare on the middle class right out in the open (Dodd, Gregg, & Schumer) then they can line a war up in a few months time.

Anonymous's picture

"And do you honestly think they are not aware of the impossibility of them defeating the United States in a war? People can criticize military spending but in the end when you can wage war against every power in existence simultaneously and win I suppose the spending was not all too frivolous huh? Such is the benefit of geopolitical control of both the Atlantic and Pacific and the inability for our shores to be invaded."

That is a bold statement, and not necessarily true.

Andrew_Miller's picture

I think he means USA can nuke every other country and sustain a nuclear response from some of them who would be able to retaliate.

Cognitive Dissonance's picture

"....then they can line a war up in a few months time."

At any moment, there are dozens of wars ready to be spooled up in days or weeks. The Pentagon is filled to the brim with various contingencies, what-ifs and various other sundry war plans, all of course strictly defensive in nature. In fact, the military brags about their "readiness" to attack whenever that late night Presidential phone call is placed, assuming of course that the powers-that-be deem it necessary to actually let the President know before the fact.

John McCloy's picture

 Absolutely. War is just like business for an economy. If JFK were not in office in 1962 we would have invaded Cuba when the Russians snuck missiles in. One can also state that only because JFK was in power did Kruschev move the missiles into Cuba. That is what worries me about Pres. Obama, and I believe Putin has some very lofty ambitions of restoring Russia to a rival superpower. 

Obama gives him that window. The Soviet is well aware that they can begin passive aggresive movements of the chess pieces and all the President is good for is a potential finger wagging while they continue to amass strength. We already cracked on the missile shield. I may not agree with our monetary policy however tampering with the CIA is something I do not recommend. This relative "peace" we are enjoying is well overdue for disruption and certainly not short of catalysts.

Andrew_Miller's picture

I think you exaggerate Putin's ability and willingness to amass power. Currently Russia is ruled by comprador robber barons and Putin is their willing partner. Russian "elite" doesn't associate itself with the country. They keep their money abroad, they often keep their families abroad and they consider Russia as a cow to milk. And they are not feeding the cow.

As far as the Russian military power is concerned consider the following anecdotal evidence from the latest "war" with Georgia:

The military headquartes of 58th army motorcade began advancing into the Ossetia territory and due to inability of staff officers to properly orient themselves on the terrain the motorcade was ambushed by the georgian specnaz. Anatoly Khrulev, the chief of the whole operation was seriousely injured.

A_MacLaren's picture

"...run itself into the ground along with other currencies and economies while stealthily adding to their gold reserves for the next few years..."

Is this a mix of reality and wishful thinking?

All fiat currencies will ultimately return to their intrinsic value.

As for adding to gold reverves, perhaps there is a reason Ft. Knox hs not been auditted since the Eisenhower years.


Master Bates's picture

Are you serious?

We can't even win a war against a shithole country like Afghanistan, and here you are saying we can beat everybody in the world simultaneously?

In case you noticed, we've spent trillions of dollars chasing 20 guys on camels with boxcutters, and we still haven't won after nine years now.
But oh yeah, bring on the rest of the world...

Shameful's picture

At the risk of sounding crazy, are we really looking for some camel riders with box cutters?  Seems to me opium production is up in Afghanistan, I also sem to remember a little CIA drug running I learned about from history in the 80s.  Hells bells also history tells us the CIA set up the Mujaheddin to fight the Soviets.  So I think it's fair to say that we are not looking for evil cave dwellers.  But Afghanistan is right on top of Russia and is close to China's oil and gas pipelines.  And those need to be protected after all, even Clinton warned the Chinese that if they did not back sanctions against Iran that someone could cut of their energy supply...surely she meant men with box cutters.

We both know that we will never leave Iraq or Afganistan untill we bankrupt.  Big O ran on getting us out of Iraq, turns out that was pillow talk too.  So neither party wants out of the wars.

But otherwise I agree.  We take on the world and we get our teeth kicked in.  We spend a shitload of money and we are not all that impressive.  Have a few cool super weapons, but still nothing that trumps the nuke systems we have had for 30-40 years ago, and no real defense against those same systems.

Cognitive Dissonance's picture

No Shameful, there is no risk of you sounding crazy to the people who desire the application of common sense, logic and independent thought to the many issues most are too frightened to even glance at, let alone investigate. You just sound crazy to the trolls who's only purpose is to disrupt and demoralize those who are willing to speak truth to power.

The real purpose of the myth keepers and thought police is to keep the mind controlled masses from straying outside the grazing area. They gotta zing a few cattle every now and then when they catch them wandering too far outside the "permitted thought zone" in order to teach the rest a lesson.

After all, it's for the greater good. Right?

Anonymous's picture

That would be camel jockeys you refer to MBater.
To save you time reading your history and allow more time for another tug, Afghanistan can never be won, not now not never ...

geopol's picture


The ongoing civil war in Afghanistan is merely a pretext, a cover story designed to provide the United States with a springboard for a geopolitical destabilization campaign in the entire region which cannot be publicly avowed. In the blunt cynical world of imperialist aggression à la Bush and Cheney, a pretext might have been manufactured to attack Pakistan directly. But Pakistan is far too large and the United States is far too weak and too bankrupt for such an undertaking. In addition, Pakistan is a nuclear power, possessing atomic bombs and medium range missiles needed to deliver them. What we are seeing is a novel case of nuclear deterrence in action. The US cannot send an invasion fleet or set up airbases nearby because Pakistani nuclear weapons might destroy them. To this extent, the efforts of Ali Bhutto and A.Q. Khan to provide Pakistan a deterrent capability have been vindicated. But the US answer is to find ways to attack Pakistan below the nuclear threshold, and even below the conventional threshold. This is where the tactic of exporting the Afghan civil war to Pakistan comes in.

The architect of the new Pakistani civil war is US Special Forces General Stanley McChrystal, who organized the infamous network of US torture chambers in Iraq . McChrystal’s specific credential for the Pakistani civil war is his role in unleashing the Iraqi civil war of Sunnis versus Shiites by creating “al Qaeda in Iraq ” under the infamous and now departed double agent Zarkawi. If Iraqi society as a whole had lined up against the US invaders, the occupiers would have soon been driven out. The counter-gang known as “Al Qaeda in Iraq ” avoided that possibility by killing Shiites, and thus calling forth massive retaliation in the form of a civil war. These tactics are drawn from the work of British General Frank Kitson, who wrote about them in his book Low Intensity Warfare. If the United States possesses a modern analog to Heinrich Himmler of the SS, it is surely General McChrystal, Obama’s hand-picked choice. McChrystal’s superior, Gen Petraeus, wants to be the new Field Marshal von Hindenburg – in other words, he wants to be the next US president.

The vulnerability of Pakistan which the US and its NATO associates are seeking to exploit can best be understood using a map of the prevalent ethnic groups of Afghanistan, Pakistan, Iran, and India. Most maps show only political borders which date back to the time of British imperialism, and therefore fail to reflect the principal ethnic groups of the region. For the purposes of this analysis, we must start by recognizing a number of groups. First is the Pashtun people, located mainly in Afghanistan and Pakistan. Then we have the Baluchis, located primarily in Pakistan and Iran. The Punjabis inhabit Pakistan, as do the Sindhis. The Bhutto family came from Sind.

Anonymous's picture

You know nothing about history. The mighty Romans could not conquer the Afghans. The Persians ditto. The British broken too in their attempt. The Russians at the peak of their power, broken. We are playing at civilizing these people; perhaps it will work. We (the USA) have a pretty good system & the Afghans aren't stupid, they see what success we have had. Just because they are poor & remote does not make them a 'shithole' country. On the other hand we cannot take on the whole world. Nazi Germany made that mistake. Whatever you think of our leadership they wouldn't go there. Finally, The US revolutionary army wasn't much more than 20 guys on camels with boxcutters when we beat the mighty British in their prime.

jailnotbail's picture

You'd be correct if the mission was to 'defeat' the Afghans, or the 100 Al Queda in country, or the Taliban, or whoever is the enemy of the week.   But it's not. Just as in Iraq the real mission is to maintain a presence because it's ideally situated for a number of strategic purposes. And then there is that lucrative opium trade..When tax revenues are way down it's hard to resist skimming some of that action.

Anonymous's picture

That's one sick way of interacting with neighbors. What difference is that from the stand over tactics of the Mafia of a gang. SICK!!!

faustian bargain's picture

I think the military-industrial complex sees a pretty good benefit to military spending, regardless of looting. "Looting the US economy" is more like it. Taxes are one thing, but without the invisible flat tax of inflation, the war machine boondoggle loses a lot of steam.

geopol's picture

The US and NATO strategy begins with the Pashtuns, the ethnic group from which the so-called Taliban are largely drawn. The Pashtuns represent a substantial portion of the population of Afghanistan, but here they are alienated from the central government under President Karzai in Kabul, even though the US puppet Karzai passes for a Pashtun himself. The issue involves the Afghan National Army, which was created by the United States after the 2001 invasion. The Afghan officer corps are largely Tajiks drawn from the Northern Alliance that allied with the United States against the Pashtun Talibans. The Tajiks speak Dari, sometimes known as eastern Persian. Other Afghan officers come from the Hazara people. The important thing is that the Pashtuns feel shut out.

The US strategy can best be understood as a deliberate effort at persecuting, harassing, antagonizing, strafing, repressing, and murdering the Pashtuns. The additional 40,000 US and NATO forces which Obama demands for Afghanistan will concentrate in Helmand province and other areas where the Pashtuns are in the majority. The net effect will be to increase the rebellion of the fiercely independent Pashtuns against Kabul and the foreign occupation, and at the same time to push many of these newly radicalized mujaheddin fighters across the border into Pakistan , where they can wage war against the central government in Islamabad . US aid will flow directly to war lords and drug lords, increasing the centrifugal tendencies.

On the Pakistani side, the Pashtuns are also alienated from the central government. Islamabad and the army are seen by them as too much the creatures of the Punjabis, with some input from the Sindhis. On the Pakistani side of the Pashtun territory, US operations include wholesale assassinations from unmanned aerial vehicles or drones, murders by CIA and reportedly Blackwater snipers, plus blind terrorist massacres like the recent ones in Peshawar which the Pakistani Taliban are blaming on Blackwater, acting as a subcontractor of the CIA. These actions are intolerable and humiliating for a proud sovereign state. Every time the Pashtuns are clobbered, they blame the Punjabis in Islamabad for the dirty deals with the US that allow this to happen. The most immediate goal of Obama’s Afghan-Pakistan escalation is therefore to promote a general secessionist uprising of the entire Pashtun people under Taliban auspices, which would already have the effect of destroying the national unity of both Kabul and Islamabad .

swmnguy's picture

Great analysis, very well put.  Not widely available in the US, but clearly the only context that makes any damn sense.

Anonymous's picture

we are better off.. how?

Pladizow's picture

In varrying degrees - but all devalue relative to gold.

BobPaulson's picture

The real question is whether the exponent on the semilog graph is going to suddenly change, because devaluation is the norm or steady state fractional dilution. A catastrophe comes when the exponent changes or the growth is more than exponential, something like a factorial function, then you're hooped. The Weimar scenario was not able to maintain a steady fractional dilution, so the exponent of the function constantly grew - I'd be curious to know if anybody has fit that curve. exp(x^2)? 

hedgeless_horseman's picture
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MarketTruth's picture

Just like the Re-Build America bond, only far worse.

Gold bitches!!! (copyright 2009 Chumbawumba)

Anonymous's picture

Gold bitches!!! (copyright 2009 Chumbawumba)<<<<

ha ha, speaking of the devil.....

asdf's picture

devalue against what?


and China won't lose any money when they revaluate their currency, read:



Internet Tough Guy's picture

It's a popular lie that currencies devalue against each other.  In fact, all currencies devalue against real goods.

asdf's picture

that would be inflation. Inflation will be very subdued in the next several years, no matter what the FED will do.

Internet Tough Guy's picture

I don't agree with your definition of inflation. Also, I disagree that prices aren't rising. Why is oil over 81, gold over 1100, etc?

asdf's picture

commodities are up because there's a lot of free money out there and interest rates are artificially low. So, some traders might think that the probability that commodities will rise by more than ~2% a year is very high and therefore a better investment than treasuries.