Dollar Currency Crisis?

Originally posted at forexfactory on Nov 21, 2009.

A currency crisis where the value goes to zero and the currency gets replaced stands zero chance of happening in the United States. A higher (but still small) chance of it happening stands in emerging market economies like Russia, Turkey, China etc. Developed economies like U.S. Britain, Germany etc stand closer to zero chance of it happening.

What would happen to dollar denominated assets? Assuming the devaluation happens gradually and not overnight you will start to see significant capital outflows of the U.S. equity markets. Also a greater reluctance to buy U.S. debt. This would compound the problem of a weaker dollar.

If your interested you could read about the crisis that occurred in Russia during 2008.

http://www.wsws.org/articles/2008/oc…russ-o01.shtml

To sum it up:

1. Stock market collapse
2. Currency collapse which forces the Russian central bank to use up tens of billions of dollars to attempt to prop up the currency
3. Months of capital outflows because of people are scared of the fragile financial markets, currency, political system, and property rights/contract law. All this was amplified by the war in georgia.
4. Economy too dependent on the price of oil and thus government revenue took a big hit when oil collapsed.