US dollar is the world’s default reserve currency — most of the world trade uses US dollars. On the financial blogosphere there is an increasing discussion (conflict) that the US dollar is about to go off the cliff and collapse in value.

The reason that the dollar is expected to collapse is based on the following arguments:

1. US Federal reserve is printing US dollars at an exponential rate and currency is  not tied to anything tangible (typically gold/silver etc.)
2. The US is borrowing close to US$4 billion/day and just wasting it. Not to mention the trillions of deficit over the past few decades.
3. Secret meetings are taking place all over the world and China/Russia/Brazil/Mid-East/India etc. have decided to accept Euro’s and other currencies for energy (typically oil) as well as for trade.
4. The world no longer trusts the US financial system.
5. Hedge funds are starting to use US dollar in carry trade (borrowing in US cheaply and lending it in countries like Australia, South Africa and pocketing the difference)

Is this enough to push the US dollar over the edge.  Interestingly, all of these (if true) will cause some damage to the US dollar value.  But, abandoning a reserve currency is not a process that is likely to happen overnight.  Further, what exactly will replace as the reserve currency that everyone in the world will trust?  At this point in time there is no real currency out there available in sufficient volume easily that most people in the world trust.

Rather than starting with the forces that will push the dollar over the edge, we should really start looking at what supports the US dollar and then identify if these forces at play are sufficient to push it over the edge.  If the dollar is collapsing this will be a long process.

The US economy is weaker than before, but look at what they have in terms of strenghts — all of which are still firmly in place:

• Global relationships and friendships built over decades
• Ability to communicate and control an issue via their media (in my opinion far more powerful than their military — this allows total emotional control if used effectively)
• Political alliances (esp. in terms of how politicians think and frame a problem)
• Business thought-leadership
• Research & Innovative product development divisions of far too many multi-national corporations
• Many world-class educational institutes (again allows complete thought leadership and direction setting)
• Military power

Weakening these pillars/institutes is a process that will take decades (assuming the US just sits back and lets it happen).  If the US collapses, it will be a slow deterioration from the inside out.  The only sector that has been severely damaged in US is their financial system, the rest are still pretty much in-tact.