A reader asks:

Dear Ms. Amadeo, Given all the factors you mentioned, (in Dollar Decline or Dollar Crash?) what is your conclusion? Do you think the dollar will crash, collapsing our economy? Thanks!

Point blank, I don't think the dollar will collapse. There are far too many entities holding the dollar, including Chinese, Japanese and oil-producing governments, which all have a vested interest in keeping the dollar strong. No one benefits from a dollar collapse, so everyone will try to keep it supported.

That being said, the ill effects of a gradually declining dollar will still be enough to make life uncomfortable for most Americans. Even without a collapse, today's dollar value is at a 30 year low. This is already putting upward pressure on interest rates, which would dry up liquidity, and slow GDP. A declining dollar will cause higher import prices, including oil, which will put upward pressure on inflation.

What It Means to You

The best way to prepare for declining dollar is to cut back on spending, pay down debt, and develop a well-diversified portfolio. For tips on how to do that, read How to Retire Early and Live Well by Gillette Edmunds. This is the book I used to do exactly that.

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