Xequecal wrote:
Stathol wrote:
All of that is rather moot. If the dollar crashes, it's highly unlikely that any of your mutual funds will be worth a damn (in any currency) afterwards.
Someone really needs to explain this. The US still produces goods and services that have trillions in value. That value doesn't go away even if the dollar collapses. Why would a company's shares become worthless if they still make something that people want to buy?
Ok you have funds which are simply a large aggregate collection of many peoples investments in a spectrum of companies. Your money is proportionally invested in these companies. Lets say you have a moderate risk fund so you have a wide spectrum of investments a small percentage are very low risk and a small percentage are very high.
In the event the dollar does collapse people will see their buying power plummet (as dollars buy less), this causes a buying panic of hard assets. In order to buy hard assets people sell paper assets (stocks). The sell off in stocks causes the stocks to devalue as the buyers (if any) get to pick the lowest bid which drives bids downward. The causes a panic sell off. You see the value of your investment plummet. The companies themselves suddenly seeing their stock prices dip begin to retract - hiring freezes, layoffs -in order to protect their capital. Every other company does the same (we saw all of this in 2008,2009). Imagine it happening much faster and the pace leave people no place to call the bottom. So we see companies going into hibernate mode - trying to cancel contracts if they require an outlay of money, ceasing building and expansion operations and the like. Imagine investing in Intel when no one is buying their products. Imagine investing in GM when no one is buying cars, Coke when no one is spending money on soda or heading out to McDonalds because its on the way. The falling stocks cripple the investment firms themselves as they lose reputation and clients. The stock prices of investment firms plummet.
Precious metals skyrocket so high end batteries and anything involving silver platinum or palladium in the manufacturing process comes under a crunch. Increasing costs of goods or inability to manufacture them causes a stall in business and a stall in the business that require those goods. Future markets are crazy volatile as people try to get required goods.
Oil prices tank as production halts and transportation slows because goods aren't flowing. Major refineries show layoffs as demand slows, one good thing is gas prices drop at the pump (for now).
These hiring freezes,layoffs, and business that go under because their supply fell out from under them add individuals to public services costs while reducing available tax income. Already bankrupt states are forced to break contracts, lay off workers, or close offices. Unions picket and protest and attempt to play hard ball but they find not only did no one bring the ball - the field has gone back to woodland. Unions spend their last amount of money trying to secure their income - in some states they succeed and taxation is increased - this adds to more businesses failing and more mortgages failing.
So yes, your stocks will lose value because they represent partial ownership of sick or dying businesses in a market where no one is buying because they want to get real assets.
If I owned all of IBM but no one was buying the stock or the products and services - how much would what I own be worth?
Of course stocks will lose value, but they won't become worthless. I'd predict that after the initial shock stocks will stabilize at about what they're worth now minus the value of the trade deficit.
A computer chip isn't a hard asset? You're not going to have everyone in the country stocking up on raw metals, you can't do anything with those. The companies that deal purely in services to US customers will die, but that's the whole point, the reason the US has such a huge trade deficit is we have a bloated service industry. I don't see companies like IBM or Ford going under. People still need computers and cars. Even though the dollar has collapsed the labor people perform still has value that can be traded for computers and cars. All they'll need to do is wait a few months for a new exchange medium. I have no idea why people would flee IBM stock in such a situation, that's like saying people won't want gold mining company stock whilst everyone else is buying gold.
The collapse of the dollar doesn't change the fact that Americans still produce things of value and will want to trade that production for other things of value. Something will come in to replace the dollar as a medium of exchange.
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