Hyperinflation a real possibility if foreigners drop the dollar

Garbage DollarRe: Jim Rickards: Decline of the Petrodollar System is Good for Gold Any event that diminishes the value of the dollar as a reserve currency can trigger hyperinflation in the US as trillions of overseas dollars are repatriated to the US economy. Here is a frightening excerpt from the above interview with Jim Rickards by Casey Research (my highlighting in red):

Jim Rickards: All of the developments you mention, a GCC central bank, a BRICS multilateral bank, and the increasing use of the yuan are significant straws in the wind all pointing in the same direction—the decline of the dollar as the global reserve currency. Other similar developments could include a regional ruble zone on the Russian periphery and the creation of a true Eurobond backed by the full faith and credit of all members of the European Monetary System. While no one of these developments is decisive, each one of them represents an alternative to the dollar for a specified set of transactions. Cumulatively these developments could push the dollar past a tipping point, where it collapses suddenly and unexpectedly after an initially slow decline.

Nick Giambruno: Do you think the US has any aces up its sleeve or will otherwise be able to somehow pull a rabbit out of a hat and prevent the diminution of the dollar’s role in the international monetary system?

Jim Rickards: There is a set of policy choices the US could make that would preserve and even strengthen the dollar’s role as the leading global reserve currency. These include lower taxes, higher interest rates, breaking up big banks, reduced regulation, repeal of Dodd-Frank, reinstatement of Glass-Steagall, banning most derivatives transactions, improved educational outcomes, smart investment in infrastructure, reduced entitlements, and other structural adjustments. I see little prospect of any of these things happening, let alone all of them. As a result, one must conclude that the dollar is heading for collapse even thought that outcome is not inevitable. It is not too late to make structural adjustments, but it is extremely unlikely.

GCC is the acronym for Gulf Coopertation Council, whose members include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.  The BRICS is an association of emerging economises, which include Brazil, Russia, India, China, and South Africa.  The nations in these two groups hold 31% ($1.755 trillion) of the total foreign-held US debt of $5.653 trillion.  As a point of reference, the current US money supply of cash and checking accounts is $2.576 trillion (M1).  The larger measure of the money supply adds savings accounts and short term small certificates of deposit to the M1 total to obtain M2. Currently M2 stands at $10.800 trillion.  So, it is clear that any substantial repatriation of US dollars to our shores would result in a huge increase to our money supply, whether measured by M1 or M2.  Patrick Barron

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