Actually, it has been slowly collapsing for many years. Better questions are: is the collapse speeding up, and where might the collapse end? Could the buck in your pocket ever become as worthless as the Zimbabwe Dollar, for instance?
Prices are always going up and down, as we know. Houses are falling, at the moment, in the West; supermarket items are rising. Currency prices are volatile. One US Dollar buys a lot more Jamaican Dollars than it did ten years ago, but not quite as many Japanese Yen, and not as much gold or silver.
Everything is relative. “The Dollar” (everybody’s Dollar) has collapsed relative to goods and services that have increased in price. Those items haven’t necessarily increased in value – except when measured against the currency in which you pay for them, and when. In terms of the 1971 Dollar, a lot; in 2011 Dollars, not so much.
On the other hand, The Dollar is booming relative to things that have decreased in price, such as houses. Given all the goods and services produced by the USA, and all the assets held there, how could the US Dollar conceivably collapse? Against what benchmark could a currency resting on a base so fantastically strong and comprehensive possibly collapse? The short answer is: the accumulated debt of the Federal government, that financed its huge overseas empire.
This is not a new problem. Ancient Rome ran into financial problems when the expense of expanding and securing its empire became too much for its tax base. Its government, too, borrowed more than it could service. Its lenders lost confidence in its ability to repay its loans at all. No more loans were available, and taxes were already at a maximum. What to do?
It had to either cut back on government expenditure (mainly, the imperial army) OR devalue its currency against its benchmark – which, back then, comprised certain weights of pure gold and pure silver. What Rome did was surreptitiously reduce the proportion of silver and gold in its coins and add cheaper metals into the mix. Then it paid off its loans with the adulterated coins. What a swindle!
These days, governments issue IOUs called “currency notes”, rather than coins – and those notes are issued against no specific security at all. In effect, the governments have adopted single-entry bookkeeping. They simply think of a figure and write it on their cheque-stubs, and draw cheques like there’s no tomorrow. When they reckon the total of cheques drawn reaches the thought-up figure, they think of another figure and write that on the stub and draw more cheques.
In theory, the thought-up figures are deferred Public Revenue – tax-revenue that will be paid by taxpayers in forty years’ time, or a hundred and forty, or... whenever. In theory, national governments that commit this sort of swindle are insolvent – just as individuals would be. But individuals would be defrauding the banks whose cheque-books they were using, whereas governments are only defrauding their taxpayers with the consent of those same taxpayers, who keep voting the fraudsters back in. Why? Because the fraudsters are sweet-talkin’ rogues, that's why.
It’s a handy way for a country to pay its bills, as long as its suppliers continue to accept the cheques. Of course, sooner or later the irresponsible creation of credit (all those thought-up figures) will lead to a collapse of confidence in the cheques and the currency they’re drawn in. When that happens, the suppliers will switch to other mediums of exchange – other forms of money.
At worst, the spurned currency goes out of use, like the Zimbabwe Dollar did in recent times. The US Dollar itself? Yes, its slow collapse could suddenly accelerate; a loaf of bread could cost ten dollars, then fifty, then a hundred, and so on. Wages would have to rise, to allow people to buy the bread; then the price of bread would rise again – and so on.
Well, paper currency began as IOUs for pure gold and silver kept in warehouses, and the world might have to revert to that practice one day soon. It could be anything else kept in warehouses, as long as the item wasn’t readily available all over the place.
You wouldn’t get far trying to use warehouse receipts for cans of soup as money. Soup isn’t rare. Everybody’s Mum could cook up a pot of soup-money every morning.
Wal-Mart wouldn’t give you much in exchange for a can-of-soup certificate, or a “you can trust me” certificate from some crooked Central Banker. A gold certificate? Ah, that’ll do nicely, sir.
