I think Iceland is a great study of what may occur here.
For those of us that are young and in the US or Europe, you and I have never endured a great failing of the system. Our brains can't contemplate "it" happening. But the reality is -- it can, and is, happening now in Iceland.
Icelandic folks were riding very high until the tightly wound kronas started to unfurl, and I'm guessing many are still in shock and denial. Eventually, it gives way to anger, which is what we see now with the protests.
Prepare for the worst folks, keep hoping for the best. But don't live in a state of denial, it'll only serve to hurt you.
The best lesson to draw is that Iceland is still there. Their national bank, their currency, and their financial sector failed in the most dramatic way possible.
Most people still have their jobs. There are no breadlines. The world didn't end. Everything is more or less OK in Iceland. It's not a pretty picture, but no one could expect it to be so.
I don't know about that. It could. But the US dollar is basically the world's reserve currency. If was devalued as much as the krona, I have no idea what would happen to the entire world, not just us.
It's the world's reserve currency, true. But how hard is it to turn dollars into gold? It takes like two days and is practically free. It's not like there's anything stopping countries from going off the dollar and onto gold. It could happen in a week, and no individual country shorting the dollar would incur any cost.
There's about three trillion worth of gold, not all of it for sale of course. But there are enough precious metals for a lot of dollar holders to get off said currency if they feel it is not in their interest to keep it. Alternatively, they can buy machines to dig for gold or invest in publicly traded gold companies, which also amounts to shorting the dollar. This might not be easy or even possible for China or Saudi Arabia, but it is certainly possible for Egypt and other small countries with US treasury bonds. If a few countries short the dollar, the price of gold in dollars would rise accordingly, making gold reserves enough to accommodate the next few stages of a run on the dollar.
A steep increase in the price of gold would carry horrific consequences in human suffering and environmental damage. http://ngm.nationalgeographic.com/2009/01/gold/larmer-text
Even if our current fiat currency system is untenable we have to find a better solution than a gold standard.
That seems true but it's not. If any country with large dollar holdings were to begin dumping them, they'd saturate the market and devalue the rest of their own dollars. For instance, if China were to begin dumping dollars, it's estimated they could sell maybe 25% of their holdings before the remaining 75% were worthless.
So, with the same reasoning, no one with many shares of a company would dump them? China's been divesting dollars for a while and will dump to get that 25% if it has to.
What is also interesting (mentioned in the article) is that Iceland generates their own power from renewable sources (presumably mostly their own geothermal sources). I guess that still leaves oil for the vehicles, but it could be interesting if they move towards energy independence for financial reasons.
For those of us that are young and in the US or Europe, you and I have never endured a great failing of the system. Our brains can't contemplate "it" happening. But the reality is -- it can, and is, happening now in Iceland.
Icelandic folks were riding very high until the tightly wound kronas started to unfurl, and I'm guessing many are still in shock and denial. Eventually, it gives way to anger, which is what we see now with the protests.
Prepare for the worst folks, keep hoping for the best. But don't live in a state of denial, it'll only serve to hurt you.