Patriotism Shouldn't Apply to the Debauched Dollar

For investors, the lesson is straightforward. Holding dollars out of a sense of national loyalty is a mistake. The currency's purchasing power will continue to erode as long as the Federal Reserve maintains its current monetary policy. Gold and foreign currencies offer better stores of value. Gold traded at $35 an ounce in 1971 and now trades above $2,000. Inflation-protected securities also provide a hedge against purchasing power loss.

China and Russia have increased their gold reserves and reduced their holdings of US Treasuries. Other countries are diversifying away from the dollar. The dollar's reserve status gives it a veneer of stability. The Mises Institute says that veneer is thin.

The article concludes that patriotism should not blind Americans to the reality of their currency. Defending the dollar out of national pride is like defending a leaky boat because it flies your flag. The better course is to demand sound money, whether that means a return to the gold standard, a currency board, or the freedom to use alternative currencies.

For traders, the practical lesson is simple. Monitor the Federal Reserve's policy, the government's fiscal trajectory, and global demand for US assets. When the dollar's reserve status eventually fades, the transition could be sudden. Those who have prepared by holding real assets will fare better. Gold has already priced in much of the decline. The question is how much further the dollar can fall before the market forces a reckoning.