I notice this when travelling the world and it's one of the main reasons I think the many of the arguments for cryptocurrency are flawed. I've used decades old dollar bills in SE Asia that have been pretty much detached from the US economy for decades and have held value better than bitcoin ever has. The value of the dollar is linked not just to the US economy but also a global black economy and that has some unoffical influence on exchange rates & dollar value.
This will be true right up until the point it is not. The US dollar dominance is not a feature of the universe, it's a social agreement that, like any such agreement, will eventually come undone.
Eventually, but that eventually shows no sign of stopping soon. There are two cases where it stops: the US decides to replace the dollar with something else, and there is a clear trade in program (the EU went to the Euro, and India did something similar); or things change slowly over time so you will have plenty of time where your dollar maybe isn't worth what it was yesterday but still is worth almost a dollar - odds are you don't hold dollars long enough or that loss of value to matter.
Or, the mostly likely result and the path we are on, hyperinflation.
We hyperinflate the currency by printing $trillllions a year and hading it out to countries at war, businesses that have failed and defending the oceans.
USD has already been hyperinflated, its just the affects are being felt slowly as the money "trickles down" from the 1% to the rest of us.
It's why collectables, real estate and such were the first assets to inflate, because that's what the rich buy, food inflation is much slower.
Hyperinflation is coming, I've been saying it and buying gold since QE1 back in '08.
You're forgetting the case where the US dollar gets hyperinflated or highly inflated due to something like a debt crisis. Speaking of which...$33 trillion.
A hundred years ago a US silver dollar would buy you a decent steak dinner, and naturally a US $10 gold eagle coin would serve 10 people.
Now that same kind of dinner can still be had for the same silver dollar, but the amount of gold in the small 1923 gold eagle[0] would be enough to serve 30 today, not merely the 10 diners of 100 years ago.
And some of these are nice restaurants.
Today if your dollar does not contain the full ounce of silver it was originally intended to, and all you have is a $1 bank note instead, it still buys a kid-sized ice cream cone at McDonald's. Now sometimes only during special promotions depending on market.
[0] Regular ordinary legal tender, but were all confiscated by the government because they were gold in 1933, when the ownership of gold by Americans was outlawed until decades later (only after its backing of the dollar was discontinued).
Thanks for the info, I didn't know back in the 19th century that the US also used bimetallic currency where 10 US silver dollar is equivalent to 1 gold coin.
This has been (more or less) the standard since like forever, for at least several thousand of years including in major world's empires including the Greek, Persian, Roman (Rome and Byzantine), Islamic (Rashidun, Umayyad, Abbasid, Ottoman) and British Empire until 19th century where bimetallic currency namely silver coin (dirham) and gold coin (dinar) were pervasive.
Fun facts, the word dirham in Islamic empire is derived from the word drachma with the same meaning in Greek, while dinar is derived from the Roman word denarius.
Bimetallic currencies were a hairball for every major economy for decades. If you tie a currency to gold or silver alone, and the other a sort of token sense, it generally works.
When you try to do both, you end up with situations where the government gets incentivized to take a metal that's fairly low value, and stamp a design into it to infuse it with new value. Silver bullion in the 1880s that might be worth 60 cents an ounce suddenly went up to a buck and change when you turned it into a Morgan or Trade Dollar. I suspect the introduction of the $20 gold piece in 1849 (and possibly the $3 in 1854) were in part to sop up a glut on the gold market.
I like yours but, the rule of thumb for gold I've heard is that from Roman time until today, a 1 oz gold coin is enough to buy a suit of clothes and a fancy dinner.
This may change tomorrow when the republicans again hold the economy hostage demanding increasingly unhinged political concessions. They can do this till the dollar isn’t a useful currency anymore.
It probably won’t come to that but we don’t know. And uncertainty is bad for business.
What political concessions are they demanding? The primary one is reducing government spending. The US Govt cannot keep its current rate of spending and the democrats in the House of Representatives don’t yet see that. Interest on the government debt has grown to $640 billion dollars in 2023. That is 16% of all government revenues now (in 2023). The outstanding debt only grows due to the ~$1.5 Trillion dollar deficit between revenue and the reckless spending. To say congress has been spending like a drunken sailor would be an insult to drunken sailors. I hope congress changes that in the new budget bill by cutting spending.
Not to sound hyperbolic but I feel once the US Dollar crashes entirely to the degree that it no longer serves as a "default currency" of sorts, that society will have broken down far enough that even the gold will be relatively worthless and the predominant goods of choice will be cans of dog food and beans.
For a year you will be correct. However after a year what is left will start to rebuild, and gold works better than beans (remember the cans are all eaten by now - we are talking beans someone actually grew). The problem with beans is they spoil (even carefully stored): eventually someone says "I have all the beans I need now, but I still want to sell my shoes". Using something like gold as an agreed medium of exchanges means the bean grower and shoe maker can make an exchange without trying to put together a complex trade involving a dozen people just to get enough of various goods to satisfy the show maker. Instead the shoemaker can get some gold and then buy everything as an individual transaction - and the people he buys from can in turn go to the bean grower if they want beans.
Or instead of gold they can just trade the empty cans and if you happen to have enough of a functioning society they can also just trade on debt (see Tallysticks [1]).
Investing in gold as a hedge for the collapse of society is imo a really piss-poor idea. Either invest in stuff you can use (i.e. food) or stuff that will be demand (Ham radios, firearms). Gold is just not going to be the future medium of currency there isn't enough of it in practical sized values.
Gold - because it is pretty - will always have some value.
Ham radio is only useful if you can power it and find someone else with one who can also power it, my guess not enough people will have them to be useful. firearms are only useful if you have ammo - while you can make bullets and black power it is hard to say if it is worth it. I doubt there will be much firearm trade unless there is an ammo manufacturing (no longer society collapse - though a much more likely scenereo) - people who have ammo will keep the guns that go with it.
I'm not disagreeing that there are plenty of things other than gold to hold onto. However gold is still a reasonable choice for post disaster trade for the same reasons society settled on it in the first place. (note that society also used copper and silver for trade)
The price of gold is only relative to the dollar. We don't spend money in the current economy with ounces of gold. We do know how much stuff should roughly cost in US dollars (or local currency). So if I go to the barber, I'll get a hair cut on credit, to be paid later by either direct barter or from credit that I paid someone else.
Roman currency (both the coinage and the numeric value promixal to goods) lasted for years after the empire fell. It was just easier to use that relative value, and rely on local credit
It's possible another power will peacefully take that place, kinda like how the US Dollar usurped the British Pound without a war between those countries.
The pound wasn’t really displaced peacefully (WWII being rather the polar opposite of peace), even though the replacement happened to be from a friendly power.
> "society will have broken down far enough that even the gold will be relatively worthless and the predominant goods of choice will be cans of dog food and beans.
it absolutely was peaceful, especially in those two countries.
WW2 and the period just after wherein the British Empire experienced rapid disassembly—the context for the collapse also of the Pound Sterling as the primary global currency—were not a period that was “absolutely peaceful” in the USA and the British Empire, or the world in general.
Again, yes, it was peaceful BETWEEN the US ans UK, but your thesis that the primary global currency can collapse peacefully without a catastrophic global crisis is... well, picking the transition of the Pound to make that point is not a choice I would have gone with.
The price volatility is an aspect of the fact that existing cryptocurrencies aren't very useful for paying for things, so that the only thing they're useful for is speculating. A cryptocurrency that lacked speculation and which was widely used for payment would be much more stable.
> it's a social agreement that, like any such agreement, will eventually come undone
unless we agree for it not to. it took faith in a social structure to put the system together, and as long as it's maintained, it will stay together.
there's likely no invisible hand that builds and then ruins all of our achievements (unless we want to believe there is one (which makes it just us again in the end))
Well yeah, but of course it's kinda hard to just go ask the people who make monetary policy for the global black-market economy, since they wouldn't want to admit to any of it.
The dollar system is bad, but it’s the least bad we can see. There isn’t even a close second. It will take generations at the rate every possible competitor is also self destructing.
> I've used decades old dollar bills in SE Asia that have been pretty much detached from the US economy for decades and have held value better than bitcoin ever has.
I'm not sure what makes you feel that way. Gold and Bitcoin are up against the dollar in the past decade, and by a significant margin. Bitcoin is up ~225x against the dollar. Gold is up ~50x against the dollar going back five decades. The US dollar is pretty terrible at holding value.
If you had bought something productive like the S&P500 50 years ago, would have outperformed gold easily. No-one wants to long-term just store value unproductively (which is also bad from a macro perspective).
As I said, currency is by design (targeted positive inflation) not there to be a long-term store of value. Not sure anything but productive assets could really be that.
> Not sure anything but productive assets could really be that.
reply
I just mentioned one: gold. It's a bit early to tell for Bitcoin, of course it's probably not going to be doing 225x every decade, but I could see it holding its value better than the US dollar does.
Not sure about gold in the really long-term. There is some data but those comparisons are quite difficult and often flawed. For example, the amount of work you can buy per unit weight of gold might very well be down noticeably from the middle ages.
Bitcoin we can come back to in another 150 years or so.
> For example, the amount of work you can buy per unit weight of gold might very well be down noticeably from the middle ages.
Interesting, I didn't know that. On the other hand, it's hard to imagine what other asset would have successfully preserved its value all the way back to the Middle Ages. Certainly not company shares. Real estate maybe? Although that would require maintaining ownership through numerous wars, revolutions and tax regimes.
Time in the market is the dumbest thing ever propagated on society by the media. Seriously it's so easy to buy low and sell high if you pay the people who watch markets. I find the issue with knowledge workers is er overestimate our skill and don't realize how dumb we really are. For example I helped Tesla and should have sold last year but didn't listen to to the guy I'm paying $1500/month yet if I did I could have bought in January and sell again today. Next time I'll be better prepared.
Sure. If you want to buy a pad Thai in Thailand, US dollars are probably going to be more widely accepted. On the other hand, if you have savings in an inflating currency, you might want to convert them to a medium that holds value well in the long term, rather than US dollars. That does include S&P500 stocks but those are not bearer instruments and not easily accessible, especially in foreign countries.
Well you can sell the stock and convert it into dollars and then use those. That's something I can do easily today if I wanted regardless of the country I'm in so long as I have the Internet and an ATM.
Gold you can't travel with (weight and loss due to theft and also probably actually illegal) and is also not accessible, and Bitcoin you can't buy a coffee with. Other available crypto currencies just do worse jobs than Bitcoin or dollars at their respective functions.
The key here is to understand that monetary instruments have pros/cons. Dollars have the con that they aren't a great store of value (and this is by design). Dollars have the pro that they are widely accepted, hold their value in the short term (i.e. not volatile), and are highly liquid. Bitcoin has the pro that it's a great store of value, but has cons like inability to transact. Stocks are liquid but volatile, etc.
> That's something I can do easily today if I wanted regardless of the country I'm in so long as I have the Internet and an ATM.
That's not the case for most people in most countries. There are billions of people who are not even able to open a bank account, let alone a US stock brokerage account. Bitcoin and gold are way more accessible to the average person.
I agree that every instrument has a different set of tradeoffs though.
KYC/AML has made this much worse (on purpose - limit access to financial services without any real effect on terrorism or money laundering).
Your bank knows you, perhaps for many years. Then you move country, or lose your phone, and suddenly they have forgotten you, and you face an uphill nightmare to retain your old accounts.
A share certificate should be a bearer asset, but it is not accepted anywhere outside the original jurisdiction (e.g. EEA for UK/European shares).
> Gold you can't travel with (weight and loss due to theft and also probably actually illegal)
Which country? Last week I travelled on planes in USA and may have carried 35 pounds of silver coin, about a pound of gold coin, and >$10k cash. No problems other than being careful putting bag in overhead bin.
Travelling in/out of countries like Turkey with metal in carry-on has always been easy. One time the screener was curious and wanted to see some coin, but no problem.
Diversified bearer instruments are a prudent way to proceed into the coming government chaos in next ten years.
> Well you can sell the stock and convert it into dollars
How well did that work the entire week after 9/11?
There are numerous countries with controls over money entering or, more often, leaving the territory. This can apply to cash, gold, or other valuables. The issue generally falls under the general realm of customs regulations though also capital controls. Domestic travel generally as fewer, and often (but not always) no limits. Risks of seizure, forfeiture, and outright theft should also be considered. It's generally recommended to not check valuables.
Shipping valuables as insured cargo is another option.
Claiming that an asset is better than a currency because it’s better at what assets are supposed to do and currencies are explicitly not supposed to do is strange to say the least.
Whilst true, there are distinct classes and types of assets, with differing characteristics.
Currency is exceptionally liquid (interchangeable) and nearly-universally accepted within a particular region.
Stocks, bonds, and other financialised instruments tend to be better inflation hedges, as currency will, does, and should inflate and deflate to meet actual transaction needs, and to dilute excessively burdensome debts.
Real estate is exceptionally durable, tends to hold value well (excepting speculative bubbles), and serves excellently as collateral for debt. Other long-term tangible property (e.g., industrial plant and equipment) can play a similar role.
Commodities tend to be intermediate between cash and other forms of financialised instruments, generally having inherent liquidity (that is, the commodity can be sold for use-value), as well as its investment role.
Collectables ranging from fine arts to wines to luxury automobiles tend to have hold value well (again, modulo speculative bubbles), and are both more readily stored and transported than real estate.
Cryptocurrencies tend to most strongly resemble the latter, in both their intrinsic durability (which is NOT the same as price stability), and their portability, which is to say that they serve as a highly effective way of moving financial wealth between jurisdictions, often without any external visibility, though of course blockchain transactions, like diamonds, are forever.
Your talk about gold being “up against the dollar” shows that you simply don’t understand what a currency is.
But don’t worry, there’s an entire scam industry (the other thing you mention) built almost entirely on people not understanding the difference between an asset and a currency and the almost diametrically opposite roles and purposes of the two.
I agree that USD, regardless of its waining value, is fairly universal. If I was going to start a country, I would start with USD as the currency instead of risking insane volatility. However, as discussed in the Bitcoin whitepaper, one of its pinnacle features is it is (supposedly) not controlled by a single entity or government or private institution, or really any institution. So the advantage of USD being tethered to the USA government is both a feature and a flaw, and BTC not being tethered to anything is both a feature and a flaw.
Bitcoin has greatly increased in price while the USD has dumped in value exclusively for decades. The dollar has lost 95%+ of it's original purchasing power when they took it off the gold standard. The dollar doesn't hold value at all, it's losing value due to inflation every single day. Just less rapidly than some other currencies that are manipulated to an even higher degree. Do you pay attention to food, housing, or insurance prices? They have increased _significantly_ in just the past 3 years.
