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At this point policy makers would recognize that the paper dollar as currently understood had outlived its usefulness. Its claim to be a store of value had collapsed due to a total lack of trust and confidence, and as a result its other functions as a medium of exchange and unit of account have evaporated. A new currency is now required. More of the same would be unacceptable; therefore, the new currency would certainly have to be gold backed.

Now the hidden strength of the U.S. financial position would be revealed. By confiscating foreign official and most private gold on U.S. soil, the Treasury would now possess over seventeen thousand tons of gold, equal to 57 percent of all official gold reserves in the world. This would put the United States in about the same relative position it held in 1945 just after Bretton Woods, when it controlled 63 percent of all official gold. Such a hoard would enable the United States to do what it did at Bretton Woods—dictate the shape of the new global financial system.

The United States could declare the issuance of a “New United States Dollar” equal to ten old dollars. The new dollar would be convertible into gold at the price of one thousand new dollars per ounce—equal to $10,000 per ounce under the old dollar system. This would represent an 85 percent devaluation of the dollar when measured against the market price of gold in April 2011, and would be slightly greater than the 70 percent devaluation against gold engineered by FDR in 1933, but not a different order of magnitude. It would be far less than the 95 percent dollar devaluation measured in gold that occurred under Nixon, Ford and Carter from 1971 to 1980.

Because of its gold backing, the New United States Dollar would be the only desirable currency in the world—the ultimate victor in the currency wars. The Fed would be ordered to conduct open market operations to maintain the new price of gold as described under the flexible gold exchange standard above. A windfall profits tax of 90 percent would be imposed on all private gains from the upward revaluation of gold. The United States would then pledge generous concessionary loans and grants to Europe and China to provide liquidity to facilitate world trade, much as it had done under the Marshall Plan. Gradually, those parties whose gold had been confiscated, mostly European countries, would be allowed to buy back their gold at the new, higher price. There is little doubt that they would choose to store it in Europe in the future.

Confidence would slowly be restored, markets would reopen, new prices for goods and services would be discovered and life would continue with a New King Dollar at the center of the financial universe.

Or not. This scenario of chaos followed swiftly by the ascent of a new gold-backed dollar emerging phoenixlike from the ashes is only one possibility. Other possible scenarios would include an unstoppable financial collapse followed by the widespread breakdown of civil order and eventually a collapse of the physical infrastructure. These scenarios are familiar from popular films and novels, like Cormac McCarthy’s The Road. The stories typically involve a post-apocalyptic survival tale in the wake of devastation caused by shooting wars, natural disasters or alien invaders. In principle, the destruction of wealth, savings, trust and confidence in the aftermath of a currency war and dollar collapse might be no less catastrophic than a hostile alien invasion. A person’s net worth would consist of those things she can carry on her back.

Another possible response to a dollar collapse would be government intervention of a type that is far more extreme and coercive than the executive action permitted by IEEPA and described above. Such coercion would more likely occur in Asia or Russia and may involve wholesale nationalization of capital stock and intellectual property, closed borders and redirection of productive capacity to domestic needs rather than