What are the "every day" consequences of a dollar collapsing?

May 13, 2005 9:55 AM

I understand that if the dollar collapses prices Americans pay for foreign goods rise, but I am wondering what other little and big consequences of a falling dollar are? What will life be like in a collapsing dollar environment?

Will domestic real estate rise because the falling dollar creates a sort of hyper inflation? Will the broad stock market rise (because being long stocks is being short dollars) or will the domestic equity market fall along with the dollar? Will local rents rise or fall? Gas prices? And what about jobs? Will unemployment skyrocket or will it fall as domestic mfgs hire? For a typical urban American, how will life change (especially in the little ways one might not think of when reading a classic econ textbook)?

posted by izizi to work & money (10 comments total)

Global depression. As it becomes increasingly harder for the US to borrow to support our budget deficits short term interest rates would skyrocket likely killing the stock market and leading to deflation. Given the size of the US economy these effects would be replicated around the world leading to a global depression. Just my two cents.
posted by caddis at 10:15 AM on May 13, 2005

Realize that it won't be as simple as, say English pound being able to buy twice as much as it used to. Many foreign countries (especially China and the Asia) hold a lot of our debt and American assets. If we collapse then everything else collapses, it's called global contagion. This happened on a smaller scale during the Asian market crisis of the 90s. Eventually even stable economies seemingly unrelated or previously thought to be untouchable (i.e. South Korea) began to tank.

The world's so interconnected it really will be an all-or-nothing depression. I really doubt it would happen suddenly, sans an overarching conspiracy with leading economists. What caused the Asian depression was American investors pulling out suddenly. Theoretically the same could happen with the US, but that would be biting the hand that feeds it -- we do import a shitload.
posted by geoff. at 10:24 AM on May 13, 2005

If foreign goods cost too much, Americans won't buy them. This has a major effect on the countries selling them, since the US is such a large consumer, so they'll go down the tubes too. AKA Global depression.
posted by smackfu at 10:27 AM on May 13, 2005

Inflation (or currency weakness) isn't necessarily bad for equities in home currency terms.
posted by Kwantsar at 10:37 AM on May 13, 2005

Read the Grapes of Wrath.
posted by n9 at 10:42 AM on May 13, 2005

I'm no expert but I see gas prices as going up. My understanding is our demand is nearly outpacing supply, and plus China's oil appetite is growing like gangbusters. Not a nice recipe.

It's not so much the gas itself, though filling the tank would be more painful. It's that everything we buy is transported with it, so the price of everything would go up.

Also if the world starts pricing oil in Euros my understanding is that that would be Very Bad for us.
posted by beth at 11:20 AM on May 13, 2005

Many foreign countries (especially China and the Asia) hold a lot of our debt and American assets. If we collapse then everything else collapses, it's called global contagion.

When you borrow a thousand dollars from the bank, the bank owns you. When you borrow a million, you own the bank. Lucky for us, we own the bank. China and the rest of Asia cannot stop lending the US money unless they want to risk collapse.

Fear. It's a hell of a thing on which to run an economy.
posted by The White Hat at 11:29 AM on May 13, 2005

Thanks for the great laugh, n9....
posted by Pressed Rat at 11:55 AM on May 13, 2005

A very thorough discussion of this question, which I posted to the blue a while back. (Be ready to take some Valium when you're done reading.)
posted by alms at 12:37 PM on May 13, 2005

Will domestic real estate rise because the falling dollar creates a sort of hyper inflation?

No, housing prices will drop because everyone will be trying to get rid of their bubble-priced real-estate to afford things like food.

Will the broad stock market rise (because being long stocks is being short dollars) or will the domestic equity market fall along with the dollar?

The stock market would fall like Anna Nicole Smith on an icy pond after a binge.

Will local rents rise or fall?

Fall. As more people try to use rental income to prop up their mortgage payments on their bubble-priced homes, the excess competition will cause prices to fall.

Gas prices?

Probably rise.

And what about jobs? Will unemployment skyrocket or will it fall as domestic mfgs hire?

Skyrocket. Less money in consumer pockets, increased cost of goods in relation to income = less money spent on iPods and the like = downsizing.

For a typical urban American, how will life change (especially in the little ways one might not think of when reading a classic econ textbook)?

Think Germany in the 20s:

posted by Civil_Disobedient at 7:06 PM on May 13, 2005