JSutter, what could happen is this (based on my limited understanding of economics): Because of our massive spending, we are currently absolutely dependent upon two things for the dollar's continued survival:
1.) We are dependent upon the faith that bankers around the world have in the dollar. This is because we need to take loans from them to finance our overweight government. If bankers (many of which ironically have a huge stake in the Fed...) lose confidence, they'll simply stop loaning to us, and the US Government will go bankrupt.
2.) Taxes and loans alone do not cover governmental expenses and the payments on our loans, so we make up for the difference by printing money. We are dependent upon globalist bankers to accept our inflated dollars as payments on our debt.
Obviously, this money-printing also steals from every person who owns dollars. If we treat the economy like a corporation, the number of dollars you own is the number of shares you own. When the Fed prints money, it's like the corporation doing a stock split (obviously a very uneven one though, not 2:1 or anything)...except instead of each shareholder getting their rightful stake in new shares, the corporation itself keeps ownership of all of the new shares it made, which steals from every shareholder. Our dollar today is worth about 4 cents or so compared to our dollar when the Federal Reserve was created...so essentially, they've stolen about 96 cents on every dollar (clearly, the rate of money-printing has far exceeded the rate of economic productivity and growth, otherwise we'd have a lot more dollars in circulation but they'd still be worth the same).
Clearly, our country is not down to 4% of the wealth we once had, since only some of it left the economy for the hands of foreign bankers. Probably most of these dollars found their way back into circulation in our domestic economy, resulting in price inflation and wage inflation. Wage inflation happens much slower though, which is partially because America's economy overall
does bleed some wealth due to our debt payments and trade deficits. Losing wealth means that the economy naturally becomes poorer and smaller overall (even just by a little). This means there's less money to go around, fewer successful companies, less competition, etc., which leads to a diminished number of available jobs. This results in a higher supply of workers than demand for them, causing lower wages. The rate at which wages inflate (from more paper dollars) will exceed the rate at which they diminish from a smaller, poorer economy, but the net rate of wage increases will obviously be slower than the rate of price increases.
So really, inflation steals from every dollar-holder in two ways:
1.) It steals buying power and gives it to creditors and subsidized corporations (...Halliburton...).
2.) Although some of that money will come back to you, the buying power will continue to decrease.
Hence, Ron Paul is right when he says that monetary inflation benefits the wealthy for a while, but it destroys the middle class...and of course, that eventually leads to an economic collapse, since way too much money is concentrated in a few hands at the top and nobody can afford anything anymore.
However, if that does not happen first, something else will: If we continue on our current inflationary course, our creditors will eventually decide, "We're not going to get a suitable return on our investment," and it will be loan default time. The US government will go bankrupt and the dollar will crash. At this point, creditors can try to collect on the government's collateral
This is where it gets interesting...the government can either make good on this and fall into nonexistence (very bad for us...such a scenario would probably usher in the NAU or something to that effect), cut some kind of a compromise deal (same), or it can belligerently declare its debts null and void and try to keep its hold on country...which would almost certainly result in war. Even if other countries didn't declare war on us, they would never allow us to buy their goods (because our money is worthless to them). Our economy would become pretty much isolated from the rest of the world, and due to the fact that a lot of our manufacturing has moved overseas, it may not be able to be self-sufficient anymore anyway. In that case, our own government would go to war for resources and/or trading privileges again
In any case, I'd almost be somewhat morbidly curious to see how the economics of such a war effort would play out...with no-confidence paper money worth less than the dollar it's printed on, there'd almost certainly have to be some kind of fascist system in place where the government forces corporations to direct industrial production toward the war effort.
So basically, an economic collapse is eventually coming, since inflation and corporate welfare are destroying the middle class (corporate welfare is another topic, but the results are similar to part of my explanation above about the results of a smaller, poorer economy: corporate welfare severely hampers competition overall, reduces the size of the economy, yada yada, wages go down and corporations exploit workers and consumers). If the wealth gap does not cause economic collapse first, our dollar will eventually fall out. Interestingly enough, some of our creditors are likely also huge shareholders in the Federal Reserve, so when it comes down to it, they're kind of printing money and giving it to themselves to make payments on the loans they gave us, which is bleeding America's economy dry faster and faster (obviously it's not quite like this, since the Fed has many shareholders, but still!). They can really decide whenever they want that they've milked us for all we're worth, at which point they'll stop loaning money and cause the dollar collapse - and try to collect the collateral. Of course, that's a risky move - the government may play nice, or it may not. Heh...no matter what, it's bad for us.
