Global Financial Crisis scenarios

[boumalo]

You say what you think people should do. But I say what actually happens and has happened many times in the past. This may seem counterintuitive and working against logic, but human psychology is not about logic. And it is surely not what you think it should be.

Do you buy less when the price goes down? Give me exemples of when YOU buy less when the price goes down!

You seem to be missing the whole point. It is not a question of buying less, it is a question of saving more! When prices go down, people (me included) don't necessarily buy less, but they do save more shrinking from additional expenditures and consumption that you would expect from the fallen prices. And this has been known since long ago (and written in the textbooks, by the way).

And this is enough to cause negative or even devastating effects on the economy.

Read your message twice but am still not sure if it's a joke or not : if you buy as much and you save more it is a bad thing?

If you think it a joke, I don't think we're going anywhere, sorry. Additional savings due to prices falling reduce producers' profits. This can only be compensated by expanded consumption (provided all other things being equal), but as I said before, increased saving evidently holds back this.

And consumption is an investment by itself, but saving postpones it, so that you can't have it both ways, whether you like it or not.

Consumption is not an investment and do you prefer a nation of consumers and borrowers with a weak economy or a nation of producers and savers?
Saving didn't hold the States of becoming the first economy; going into debt to consume will make them fall of the most wanted first place
Prefer the latter; the USA was the latter, enjoyed many liberties, low taxes and small government and that is what made this nation so great; now they have consumers, debts, unfunded liabilities and they produce less and less; it will only be justice when the hard workers and savers of this world like chinese will enjoy wealth, consumption and a strong currency

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[twiifm]

You say what you think people should do. But I say what actually happens and has happened many times in the past. This may seem counterintuitive and working against logic, but human psychology is not about logic. And it is surely not what you think it should be.

Do you buy less when the price goes down? Give me exemples of when YOU buy less when the price goes down!

You seem to be missing the whole point. It is not a question of buying less, it is a question of saving more! When prices go down, people (me included) don't necessarily buy less, but they do save more shrinking from additional expenditures and consumption that you would expect from the fallen prices. And this has been known since long ago (and written in the textbooks, by the way).

And this is enough to cause negative or even devastating effects on the economy.

Read your message twice but am still not sure if it's a joke or not : if you buy as much and you save more it is a bad thing?

If you think it a joke, I don't think we're going anywhere, sorry. Additional savings due to prices falling reduce producers' profits. This can only be compensated by expanded consumption (provided all other things being equal), but as I said before, increased saving evidently holds back this.

And consumption is an investment by itself, but saving postpones it, so that you can't have it both ways, whether you like it or not.

Consumption is not an investment and do you prefer a nation of consumers and borrowers with a weak economy or a nation of producers and savers?
Saving didn't hold the States of becoming the first economy; going into debt to consume will make them fall of the most wanted first place
Prefer the latter; the USA was the latter, enjoyed many liberties, low taxes and small government and that is what made this nation so great; now they have consumers, debts, unfunded liabilities and they produce less and less; it will only be justice when the hard workers and savers of this world like chinese will enjoy wealth, consumption and a strong currency

I see the problem here.  You are looking at it from a micro point of view.   But we are talking about macro

[slimus]

Hi,

I have a question, but please direct me to a post if already asked:

In case of another GFC, would BTC bitcoin price:

a) stays on the same level 
b) skyrockets 
c) tumble down 

?

In a case of global financial crise, as the 2008 one, the price of each and every financial asset and commodities will go down (oil will go down, stocks, precious metal, and also bitcoin). In such a scenario the only safe haven will be cash and money market securities. (all the rest will crash)

However government will never let it happen, and they are ready to print even more in order to avoid this situation.

Gold went up from the dotcom bubble explosion to 2012; if we see hyper inflation most commodities will increase in nominal terms
The crisis that is coming will not destroy all wealth, it will redistribute the cards and some will come out on top

You re right, but this happened after the the dotcom bubble explosion, when the FED decided to decrease it's interest rates. However during the crises, Gold and commodities prices went down. It was the same scenario for the 2008 crises. During  the 2008 crises all prices went down (deflationary process), after the FED lunched its QE, prices started going up (inflationary process).

[CoinsCoinsEverywhere]

At least in the US, this is simply not true.  During the 2008 crisis, everything turned negative, including retail sales (see this chart: http://www.macrotrends.net/1371/retail-sales-historical-chart).  US consumers bought less in 2008 and 2009 than they did in 2007, despite any reduction in prices.

Globally the US didn't have deflation
Government computed inflation (therefore minimised) :
2008 3.8%
2009 -0.4%
2010 1.6%

If inflation was -0.4% in 2009, how was that not deflation?  If you want a better example of how bad deflation can be, look at the first part of the Great Depression.

1929 0.0%
1930 -2.3%
1931 -9.0%
1932 -9.9%
1933 -5.1%
after 1933 it turns positive again for a few years

And btw, there's still some risk in money market securities.  We haven't seen a crisis bad enough to really jeopardize the money markets, but it's possible.

It did jeopardize the money markets in 2008 but the government intervenes and guaranteed the funds, they double the bet once again and got lucky, remember?

Yes, that's a better way of putting it.  Thank you.

The US has been printing money at an insane rate the past several years, and it's worked so far, but it can't go on forever.

No amount of money printing will be able to save the situation.

YES

If that happens in a disorderly, crisis-like fashion, the whole world is screwed.

Disagree here, most if not all countries will suffer at first but it will be great for hard working countries with natural ressources low taxes and regulation and high saving rate

I suppose it would be possible for such countries to do ok, but there aren't many countries like that (can you think of some examples?), and they would have to be very isolated from the global economy.  Usually countries with strong economic growth and a good industrial base (e.g., China) are exporters.  If a significant portion of a country's economy depends on demand for their exports, they get screwed during a global crisis because no one has the money to buy their exports anymore.

You say what you think people should do. But I say what actually happens and has happened many times in the past. This may seem counterintuitive and working against logic, but human psychology is not about logic. And it is surely not what you think it should be.

Do you buy less when the price goes down? Give me exemples of when YOU buy less when the price goes down!

This doesn't have to do with desire.  This has to do with capability.  There were some good price breaks/sales during the 2008 crisis.  I would have loved to have taken advantage of them, but I couldn't because I was unemployed for a couple months at the beginning of 2008.  As a result, my family and I didn't have extra money to spend on cheaper products.  The whole reason they're cheaper in the first place is that fewer people can afford them.

[CoinsCoinsEverywhere]

Consumption is not an investment and do you prefer a nation of consumers and borrowers with a weak economy or a nation of producers and savers?
Saving didn't hold the States of becoming the first economy; going into debt to consume will make them fall of the most wanted first place
Prefer the latter; the USA was the latter, enjoyed many liberties, low taxes and small government and that is what made this nation so great; now they have consumers, debts, unfunded liabilities and they produce less and less; it will only be justice when the hard workers and savers of this world like chinese will enjoy wealth, consumption and a strong currency

This doesn't have to do with preference or what's better in the long run.  I, too, would prefer a more stable system that's full of producers and savers.  But the fact is that credit and consumption drive economic growth faster and "easier"--they are shortcuts to greater wealth.  And with today's prevalent instant gratification attitude, that's the path most people pick.  It's a lot easier to take out a loan and get that shiny new car now than it is to work hard, save for it, and pay cash later.

[tee-rex]

You say what you think people should do. But I say what actually happens and has happened many times in the past. This may seem counterintuitive and working against logic, but human psychology is not about logic. And it is surely not what you think it should be.

Do you buy less when the price goes down? Give me exemples of when YOU buy less when the price goes down!

You seem to be missing the whole point. It is not a question of buying less, it is a question of saving more! When prices go down, people (me included) don't necessarily buy less, but they do save more shrinking from additional expenditures and consumption that you would expect from the fallen prices. And this has been known since long ago (and written in the textbooks, by the way).

And this is enough to cause negative or even devastating effects on the economy.

Read your message twice but am still not sure if it's a joke or not : if you buy as much and you save more it is a bad thing?

If you think it a joke, I don't think we're going anywhere, sorry. Additional savings due to prices falling reduce producers' profits. This can only be compensated by expanded consumption (provided all other things being equal), but as I said before, increased saving evidently holds back this.

And consumption is an investment by itself, but saving postpones it, so that you can't have it both ways, whether you like it or not.

Consumption is not an investment and do you prefer a nation of consumers and borrowers with a weak economy or a nation of producers and savers?
Saving didn't hold the States of becoming the first economy; going into debt to consume will make them fall of the most wanted first place
Prefer the latter; the USA was the latter, enjoyed many liberties, low taxes and small government and that is what made this nation so great; now they have consumers, debts, unfunded liabilities and they produce less and less; it will only be justice when the hard workers and savers of this world like chinese will enjoy wealth, consumption and a strong currency

If so, then how people are going to invest later according to your own words, that is "savings are good because they will be reinvested"?

And as I understand, now you don't deny that savings will increase even if prices are falling, right?

[boumalo]

At least in the US, this is simply not true.  During the 2008 crisis, everything turned negative, including retail sales (see this chart: http://www.macrotrends.net/1371/retail-sales-historical-chart).  US consumers bought less in 2008 and 2009 than they did in 2007, despite any reduction in prices.

Globally the US didn't have deflation
Government computed inflation (therefore minimised) :
2008 3.8%
2009 -0.4%
2010 1.6%

If inflation was -0.4% in 2009, how was that not deflation?  If you want a better example of how bad deflation can be, look at the first part of the Great Depression.

1929 0.0%
1930 -2.3%
1931 -9.0%
1932 -9.9%
1933 -5.1%
after 1933 it turns positive again for a few years

And btw, there's still some risk in money market securities.  We haven't seen a crisis bad enough to really jeopardize the money markets, but it's possible.

It did jeopardize the money markets in 2008 but the government intervenes and guaranteed the funds, they double the bet once again and got lucky, remember?

Yes, that's a better way of putting it.  Thank you.

The US has been printing money at an insane rate the past several years, and it's worked so far, but it can't go on forever.

No amount of money printing will be able to save the situation.

YES

If that happens in a disorderly, crisis-like fashion, the whole world is screwed.

Disagree here, most if not all countries will suffer at first but it will be great for hard working countries with natural ressources low taxes and regulation and high saving rate

I suppose it would be possible for such countries to do ok, but there aren't many countries like that (can you think of some examples?), and they would have to be very isolated from the global economy.  Usually countries with strong economic growth and a good industrial base (e.g., China) are exporters.  If a significant portion of a country's economy depends on demand for their exports, they get screwed during a global crisis because no one has the money to buy their exports anymore.

You say what you think people should do. But I say what actually happens and has happened many times in the past. This may seem counterintuitive and working against logic, but human psychology is not about logic. And it is surely not what you think it should be.

Do you buy less when the price goes down? Give me exemples of when YOU buy less when the price goes down!

This doesn't have to do with desire.  This has to do with capability.  There were some good price breaks/sales during the 2008 crisis.  I would have loved to have taken advantage of them, but I couldn't because I was unemployed for a couple months at the beginning of 2008.  As a result, my family and I didn't have extra money to spend on cheaper products.  The whole reason they're cheaper in the first place is that fewer people can afford them.

Prices going down were the only good thing in the Great D, do you think prices going up would have been better for people having very limited ressources?

People have less money in depression times so it is good that prices are lower not higher

China will fair well after the USD collapsed and the dust has settled

tee-rex : savings are good, consuming on credit is bad

slimus : the bubbles arrived because the FED created them with low interest rates, when Greenspan increased the interest rates it was the solution to get a much needed crisis to eliminate the bad debt but they decided to re-inflate bubbles because they care about the present not the future

[tee-rex]

tee-rex : savings are good, consuming on credit is bad

What about savings versus direct consumption? Which one is better? You won't get away with this question so easily.

[Harley997]

Hi,

I have a question, but please direct me to a post if already asked:

In case of another GFC, would BTC bitcoin price:

a) stays on the same level 
b) skyrockets 
c) tumble down 

?

In a case of global financial crise, as the 2008 one, the price of each and every financial asset and commodities will go down (oil will go down, stocks, precious metal, and also bitcoin). In such a scenario the only safe haven will be cash and money market securities. (all the rest will crash)

However government will never let it happen, and they are ready to print even more in order to avoid this situation.

Gold went up from the dotcom bubble explosion to 2012; if we see hyper inflation most commodities will increase in nominal terms
The crisis that is coming will not destroy all wealth, it will redistribute the cards and some will come out on top

You re right, but this happened after the the dotcom bubble explosion, when the FED decided to decrease it's interest rates. However during the crises, Gold and commodities prices went down. It was the same scenario for the 2008 crises. During  the 2008 crises all prices went down (deflationary process), after the FED lunched its QE, prices started going up (inflationary process).

It really depends on how bad the crisis is. If it is the scale of what we saw in 2008 (in the tens of trillions of dollars) then bitcoin price would likely fall. If it is a much more modest crisis then it could potentially rise.

[slimus]

Hi,

I have a question, but please direct me to a post if already asked:

In case of another GFC, would BTC bitcoin price:

a) stays on the same level 
b) skyrockets 
c) tumble down 

?

In a case of global financial crise, as the 2008 one, the price of each and every financial asset and commodities will go down (oil will go down, stocks, precious metal, and also bitcoin). In such a scenario the only safe haven will be cash and money market securities. (all the rest will crash)

However government will never let it happen, and they are ready to print even more in order to avoid this situation.

Gold went up from the dotcom bubble explosion to 2012; if we see hyper inflation most commodities will increase in nominal terms
The crisis that is coming will not destroy all wealth, it will redistribute the cards and some will come out on top

You re right, but this happened after the the dotcom bubble explosion, when the FED decided to decrease it's interest rates. However during the crises, Gold and commodities prices went down. It was the same scenario for the 2008 crises. During  the 2008 crises all prices went down (deflationary process), after the FED lunched its QE, prices started going up (inflationary process).

It really depends on how bad the crisis is. If it is the scale of what we saw in 2008 (in the tens of trillions of dollars) then bitcoin price would likely fall. If it is a much more modest crisis then it could potentially rise.

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

[CoinsCoinsEverywhere]

Prices going down were the only good thing in the Great D, do you think prices going up would have been better for people having very limited ressources?

People have less money in depression times so it is good that prices are lower not higher

Sure it's beneficial for consumers for prices to be lower when they go to the store and buy things, but the lower prices don't make up for the lack of consumption due to the hard economic times.  Aggregate consumption falls, even though prices are lower.

China will fair well after the USD collapsed and the dust has settled

I guess it depends on how far in the future you look.  They would almost certainly recover better and faster than the US, but a USD collapse would greatly hurt their economy.  It would destroy a lot of US demand for their exports, and because of our close economic ties with Europe, the European financial system would also probably collapse, which would destroy their demand for Chinese exports as well.  It's impossible to predict how bad it could get, but I could see a USD collapse leading to a global depression.

[CoinsCoinsEverywhere]

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

There is certainly a correlation (and sometimes a strong one) between the strength of the dollar and the price of commodities and other currencies, but it's not a perfect correlation.  If the dollar weakens, that could help the price of bitcoin rise, but not necessarily.  Ultimately, the price of bitcoin in USD is simply determined by how much USD people are willing to pay for it.  The price of bitcoin in USD will only rise as a result of USD weakness if people believe that bitcoin will hold its value better than USD.

And btw, the US is still on course to continue tapering its bond purchases, so QE infinity is (theoretically) coming to an end.  The Fed is also expected to start raising interest rates within another year or so (of course that prediction keeps getting moved back), which will remove the last of the stimulus.

[twiifm]

Prices going down were the only good thing in the Great D, do you think prices going up would have been better for people having very limited ressources?

People have less money in depression times so it is good that prices are lower not higher

Sure it's beneficial for consumers for prices to be lower when they go to the store and buy things, but the lower prices don't make up for the lack of consumption due to the hard economic times.  Aggregate consumption falls, even though prices are lower.

China will fair well after the USD collapsed and the dust has settled

I guess it depends on how far in the future you look.  They would almost certainly recover better and faster than the US, but a USD collapse would greatly hurt their economy.  It would destroy a lot of US demand for their exports, and because of our close economic ties with Europe, the European financial system would also probably collapse, which would destroy their demand for Chinese exports as well.  It's impossible to predict how bad it could get, but I could see a USD collapse leading to a global depression.

Its pointless to discuss in macro terms when the guy can only think in micro terms.   Just write anecdotes from consumers point of view so he understands

Price of gas drops so I'll just buy double the amount and store it in my garage.   Same goes for food, clothes.   

I just got laid off but cars are 20% less this year so I'll just buy a car instead of worrying how I'll pay my rent or feed myself until I find work again

Or

I just made  bonus this year so I'll buy a new car,  take a vacation,  etc.. Cause I have some extra money

[ShakyhandsBTCer]

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

There is certainly a correlation (and sometimes a strong one) between the strength of the dollar and the price of commodities and other currencies, but it's not a perfect correlation.  If the dollar weakens, that could help the price of bitcoin rise, but not necessarily.  Ultimately, the price of bitcoin in USD is simply determined by how much USD people are willing to pay for it.  The price of bitcoin in USD will only rise as a result of USD weakness if people believe that bitcoin will hold its value better than USD.

And btw, the US is still on course to continue tapering its bond purchases, so QE infinity is (theoretically) coming to an end.  The Fed is also expected to start raising interest rates within another year or so (of course that prediction keeps getting moved back), which will remove the last of the stimulus.

This is true regarding the value of the dollar. However in times of economic (and geopolitical) crisis the dollar tends to rise as it is considered the least risky asset class.

[arbitrage001]

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

There is certainly a correlation (and sometimes a strong one) between the strength of the dollar and the price of commodities and other currencies, but it's not a perfect correlation.  If the dollar weakens, that could help the price of bitcoin rise, but not necessarily.  Ultimately, the price of bitcoin in USD is simply determined by how much USD people are willing to pay for it.  The price of bitcoin in USD will only rise as a result of USD weakness if people believe that bitcoin will hold its value better than USD.

And btw, the US is still on course to continue tapering its bond purchases, so QE infinity is (theoretically) coming to an end.  The Fed is also expected to start raising interest rates within another year or so (of course that prediction keeps getting moved back), which will remove the last of the stimulus.

This is true regarding the value of the dollar. However in times of economic (and geopolitical) crisis the dollar tends to rise as it is considered the least risky asset class.

Dollar has value because you can still buy oil with it.

In time of crisis, people and central banks usually flock to gold.

[boumalo]

tee-rex : savings are good, consuming on credit is bad

What about savings versus direct consumption? Which one is better? You won't get away with this question so easily.

Correct but you cannot have a healthy economy with increasing salaries (in real terms!) and increasing standard of living if you consume on credit but your industry is stable or decreasing, your taxes are going up, your trade&public deficit are going up, your unfunded liabilities is going up, the number of employed people compared to the total of the population is going down and the quality of the jobs is going way down (look at the last jobs reports : mostly part time jobs and full time jobs are destroyed at an alarming rate!)

Prices going down were the only good thing in the Great D, do you think prices going up would have been better for people having very limited ressources?

People have less money in depression times so it is good that prices are lower not higher

Sure it's beneficial for consumers for prices to be lower when they go to the store and buy things, but the lower prices don't make up for the lack of consumption due to the hard economic times.  Aggregate consumption falls, even though prices are lower.

China will fair well after the USD collapsed and the dust has settled

I guess it depends on how far in the future you look.  They would almost certainly recover better and faster than the US, but a USD collapse would greatly hurt their economy.  It would destroy a lot of US demand for their exports, and because of our close economic ties with Europe, the European financial system would also probably collapse, which would destroy their demand for Chinese exports as well.  It's impossible to predict how bad it could get, but I could see a USD collapse leading to a global depression.

It is reasonable to make those assumptions; the collapse of the USD will have huge negative consequences for many but China will be able consume what they produce, the shifting will not be overnight but it will happen eventually; many other asian countries are on the right track and some European countries are strong as well
It is stupid to say the world economy cannot live without the USD, the world economy will be better off without the price to pay to have the USD as a world reserve currency and world payment currency

[tee-rex]

tee-rex : savings are good, consuming on credit is bad

What about savings versus direct consumption? Which one is better? You won't get away with this question so easily.

Correct but you cannot have a healthy economy with increasing salaries (in real terms!) and increasing standard of living if you consume on credit but your industry is stable or decreasing, your taxes are going up, your trade&public deficit are going up, your unfunded liabilities is going up, the number of employed people compared to the total of the population is going down and the quality of the jobs is going way down (look at the last jobs reports : mostly part time jobs and full time jobs are destroyed at an alarming rate!)

You didn't answer my question...

[Harley997]

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

There is certainly a correlation (and sometimes a strong one) between the strength of the dollar and the price of commodities and other currencies, but it's not a perfect correlation.  If the dollar weakens, that could help the price of bitcoin rise, but not necessarily.  Ultimately, the price of bitcoin in USD is simply determined by how much USD people are willing to pay for it.  The price of bitcoin in USD will only rise as a result of USD weakness if people believe that bitcoin will hold its value better than USD.

And btw, the US is still on course to continue tapering its bond purchases, so QE infinity is (theoretically) coming to an end.  The Fed is also expected to start raising interest rates within another year or so (of course that prediction keeps getting moved back), which will remove the last of the stimulus.

This is true regarding the value of the dollar. However in times of economic (and geopolitical) crisis the dollar tends to rise as it is considered the least risky asset class.

Dollar has value because you can still buy oil with it.

In time of crisis, people and central banks usually flock to gold.

The dollar has value because it is the most widely accepted form of payment accepted throughout the world.

[boumalo]

In order to see the price of bitcoin, gold and all commodities goes up, we need the dollar's price (or value) to go down. In other words : inflation. With QE infinity, the world is heading towards inflation !. So good news for US 

There is certainly a correlation (and sometimes a strong one) between the strength of the dollar and the price of commodities and other currencies, but it's not a perfect correlation.  If the dollar weakens, that could help the price of bitcoin rise, but not necessarily.  Ultimately, the price of bitcoin in USD is simply determined by how much USD people are willing to pay for it.  The price of bitcoin in USD will only rise as a result of USD weakness if people believe that bitcoin will hold its value better than USD.

And btw, the US is still on course to continue tapering its bond purchases, so QE infinity is (theoretically) coming to an end.  The Fed is also expected to start raising interest rates within another year or so (of course that prediction keeps getting moved back), which will remove the last of the stimulus.

This is true regarding the value of the dollar. However in times of economic (and geopolitical) crisis the dollar tends to rise as it is considered the least risky asset class.

Dollar has value because you can still buy oil with it.

In time of crisis, people and central banks usually flock to gold.

The dollar has value because it is the most widely accepted form of payment accepted throughout the world.

It doesn't mean they can create USD in any amount and it won't lose its value

Countries and companies can stop using USD

tee-rex : savings are good, consuming on credit is bad

What about savings versus direct consumption? Which one is better? You won't get away with this question so easily.

Correct but you cannot have a healthy economy with increasing salaries (in real terms!) and increasing standard of living if you consume on credit but your industry is stable or decreasing, your taxes are going up, your trade&public deficit are going up, your unfunded liabilities is going up, the number of employed people compared to the total of the population is going down and the quality of the jobs is going way down (look at the last jobs reports : mostly part time jobs and full time jobs are destroyed at an alarming rate!)

You didn't answer my question...

In the states it would be healthier and better for the economy in a long term perspective if consumers were saving more and consuming less

[CoinsCoinsEverywhere]

Prices going down were the only good thing in the Great D, do you think prices going up would have been better for people having very limited ressources?

People have less money in depression times so it is good that prices are lower not higher

Sure it's beneficial for consumers for prices to be lower when they go to the store and buy things, but the lower prices don't make up for the lack of consumption due to the hard economic times.  Aggregate consumption falls, even though prices are lower.

China will fair well after the USD collapsed and the dust has settled

I guess it depends on how far in the future you look.  They would almost certainly recover better and faster than the US, but a USD collapse would greatly hurt their economy.  It would destroy a lot of US demand for their exports, and because of our close economic ties with Europe, the European financial system would also probably collapse, which would destroy their demand for Chinese exports as well.  It's impossible to predict how bad it could get, but I could see a USD collapse leading to a global depression.

It is reasonable to make those assumptions; the collapse of the USD will have huge negative consequences for many but China will be able consume what they produce, the shifting will not be overnight but it will happen eventually; many other asian countries are on the right track and some European countries are strong as well
It is stupid to say the world economy cannot live without the USD, the world economy will be better off without the price to pay to have the USD as a world reserve currency and world payment currency

The world absolutely can survive without the Dollar as the reserve currency.  China and many other countries would eventually be fine without it.  The US would eventually recover, too (although probably not to where we are today).  The problem is that the transition would be very very painful.