the debasement trade

rono

Howdy folks,

The debasing of the fiat currencies around the world, ever since we went off the gold standard, and particularly here at home, has bothered me for much of my adult life. I wrote a paper on it in Econ 318 Money, Credit and Banking back in '78 tracing it back to Aristophanes in Frogs,

"This city, it often seems to me
treats our best and worthiest citizens
the way it does our old silver coins,
our new gold ones, as well.(40) This money
was never counterfeit—no, these coins
appeared to be the finest coins of all,
the only ones which bore the proper stamp.
Everywhere among barbarians and Greeks
they stood the test. But these we do not use.
Instead we have our debased coins of bronze,
poorly struck some days ago or yesterday."

The US dollar has been the bedrock of international banking for quite a while, but those days are coming to an end. Lots of reasons such as Trump and his trade war, but Russia invading Ukraine and having us freeze a lot of their assets tied to the greenback was huge. The rest of the world, went WTF!?!, what are our alternatives. They've been switching to them ever since. On the margin, I grant you, as no one wants to spook the market they're selling into, but they have been selling dollars and buying lots of stuff. You see it in gold, crypto, corporate stocks, etc. With the debt levels and politization of the banking systems . . . geez, we have $39T in official debt and well over $100T in unfunded liabilities. Gov't takes in about $5T a year. Duh. They have two choices - break promises such as Social Security and Medicare and gov't pensions or debase the currency and pay off the debts with cheaper money. Either way, I'm really riding the PMs, particularly silver. Hell, I've been a Stacker since 3rd grade. Right now, the silver market is experiencing a major short squeeze as London is running short of physical silver. They mostly only deal with paper silver, but many contract holders as asking for Delivery of physical instead of a rollover and payout. Much silver was shipped to the US to avoid potential tariffs. Now folks around the world are asking for their real silver and the LBMA doesn't have it. Their risk of default is greater than zero. They're so desperate for bullion, the refiners here in the US are no longer taking 90% silver because they don't have time to purify it to 999%. It still has value, but 'not right now'. [note to any Stackers, the premium on 90% is the lowest it will ever be.]

So, if fiat currencies are not the place to invest our hard earned money, where should we invest? I am really interested in your thoughts. This group has the best set of minds available for free. Always has had.

https://finance.yahoo.com/news/great-debasement-debate-rippling-across-233000819.html

and so it goes,

peace,

rono

syzygy

@rono- I am in total agreement. There is no way to make the debt clock run backwards.

Debasement is accelerating and metals are the way I preserve purchasing power. I have about 10% in physical gold, silver and platinum. Also SLV and a couple of open end funds that invest in mining stocks. Been a great year for PM bugs!

hank

@rono - ”You’ve been right so long it feels like wrong to me.”

Nice post. Debasement yes.

Personally, I haven’t played in the pm’s for a long while. Have maintained some exposure thru a real assets fund, some managed futures, and some collectible investment grade Morgans. (The cc are especially nice.)

Alternatives to the pm’s? I’ve held FXF for a while and recently bought a bit of FXY. Of course, as you suggest, those are currencies and may be debased along with the dollar. Also, it’s clear to me many managed futures funds are chasing the metals. Nice ride. It will work until it doesn’t.

Speaking of debasement, I mailed a letter today USPS ”Priority” (usually arrives in 1-3 business days). Cost? $11.90

Interesting Photo

Regards

Old_Joe

This Gold Rush Is Ominous

Following are edited excerpts from a current report in The Atlantic.   (This should be a free link.)

When prices are high and global conflicts destabilize the world, some investors start looking backwards—and what’s older and more dependable than gold?

Last week, amid widespread geopolitical turmoil and a weakening U.S. dollar, the price of gold hit a historic high of $4,000 an ounce. This year has so far been gold’s best since 1979, a moment of instability so profound that it led to recession.

Over the past 50 years, spikes in the price of gold have typically been correlated with widespread inflation and geopolitical dysfunction. The precious metal has long been considered a safe-haven asset, because, unlike the U.S. dollar, its inherent value isn’t determined by any state government.

Some investors see gold as a standard way to diversify their portfolio. Others, stereotypically known as goldbugs, tend to be broadly skeptical about contemporary monetary policy. Just as investors in bitcoin, so-called digital gold, have historically skewed libertarian and anti-institutional, the most extreme goldbugs are betting against the system, doubtful that the Federal Reserve is capable of keeping the U.S. dollar strong.

Gold prices have already risen more than 50 percent this year and are showing no signs of stopping. The story of today’s gold boom began in 2022, when Russia invaded Ukraine and Western governments decided to sanction the Russian central bank by freezing its foreign-exchange reserves. The scale of these sanctions was a reminder of why countries might want to own assets that can’t be easily frozen. Especially in emerging markets, central banks around the world “realized that the truly only safe asset” is gold.

The other main driver of this price spike is less abstract. Some Wall Streeters are concerned that the value of the U.S. dollar will continue to erode as the national debt climbs and the Federal Reserve loses its grip on the currency. They’re making what’s become known as the “Debasement Trade,” shifting money away from the weakening U.S. dollar and into harder, more independent assets such as gold and bitcoin. Shrinkflation, stagflation, good-old-fashioned inflation—all of it means that your paycheck doesn’t go as far as it once did, and all of it is good for gold.

The mystery of the current gold rally is that the S&P 500 is also up. The stock-market index reached an all-time high earlier this month, which would seem to suggest that the American economy isn’t quite as close to the brink as the price of gold might indicate.

But the reality probably has to do with a bifurcated market. Vanguard’s global chief economist told The New York Times on Saturday that this rare case of gold and stocks moving in a parallel upward trend has to do with “dramatically different” investor perspectives: The optimists are going with equities, and the pessimists are going with gold. In today’s economy, there’s room enough for both.

Sven

“ Why soaring gold prices could be a warning sign for the economy”

The flight toward gold has coincided with a depreciation in the value of the U.S. dollar. Its value against other currencies plunged about 11% over the first half of 2025, the biggest decline in more than 50 years, a Morgan Stanley report in August found.

The decline in the U.S. dollar's value reflects a shift away from global dependence on the dollar as a global reserve currency, as investors take note of changes in U.S. economic policy and Trump's pressure campaign against the Fed, analysts said.

"Investors are getting nervous about all the traditionally safe U.S. assets like treasury securities," Pasquariello said. "Where else will they put money? Gold."

https://abcnews.go.com/Business/soaring-gold-prices-warning-sign-economy/story?id=126414464