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What Happens To U.S. Retirees If The U.S. Dollar Collapses?

“Kathleen and Lief, great stuff, always a favorite read. Having been to many of the places you write about, I will say that you are right on the money. Keep up the good work.

“But I have a question. You both mention the dollar in Ecuador and Panama as though this is a good thing. The U.S. dollar is under fire big time now. The risk is very real that the petro-dollar will cease to exist and/or that the U.S. dollar will fall as the world’s reserve currency. When either or both of these events occur, massive price inflation will follow (as it invariably does) the massive monetary inflation which has already occurred. The U.S. dollar is no longer a good repository of purchasing power. What will be the effect on other countries (and expats living there) that use the U.S. dollar when major to hyper-inflation sets in for the U.S. dollar?”

–George F., United States

The U.S. dollar could lose its place as the world’s reserve currency, but that won’t happen overnight…just as the transition from the British pound to the U.S. dollar as the world’s reserve currency didn’t happen overnight. Any immediate and drastic effect from the U.S. dollar falling from this position is unlikely.

Should the United States see hyperinflation due to other issues with the U.S. dollar or the U.S. economy, then other U.S. dollar-based economies would be affected, as well, although probably to a lesser extent. Panama can’t print more dollars to pump into its economy; the country has to earn them. That fact has helped to keep inflation in Panama much lower than U.S. inflation over most of the last century that Panama has used the dollar as its currency.

Still, yes, Panama would see inflation if the U.S. dollar collapsed against the world’s other major currencies. And, if that happened, Panama could elect to change its currency…as could Ecuador and the other dollar economies.

The reality is that folks living on fixed U.S. pension or Social Security income will be in trouble if the dollar collapses. This will be the case whether they live in the United States or in another country that uses the U.S. dollar, such as Panama or Ecuador. However, they will be better off at least in the short-term if they are living outside the United States.

Continue reading: Deferring U.S. Tax Using The 1031 Like-Kind Exchange

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