Authored by Lance Roberts via RealInvestmentAdvice.com,
The“fiat is dying”argument has become a catchphrase narrative among digital asset bulls, gold bugs, and cryptocurrency advocates. That narrative’s core is that central banks have printed vast amounts of money. The“money printing”has led to currency debasement and rendered the U.S. dollar obsolete. We discussed this“debasement”narrative previously.
The narrative is seductive: inflation is out of control, the government is printing money, and the dollar is on its last legs.But while there are real risks to watch, most headlines sell fear rather than fact.It’s striking, and those selling gold, silver, or other doomsday assets often use it to scare individuals into taking action. One of their favorite charts used to make the “debasement” case is the classic graph showing that the U.S. dollar has lost 90% of its purchasing power since 1966.”
But here’s the thing:that chart doesn’t show debasement.It only reflectsinflation, a well-understood and largely expected outcome in a growing economy. Prices rise over time because demand increases due to population growth, rising incomes, and growing consumption. This is especially true in a post-industrial, service-driven economy that incentivizes credit expansion and capital investment. In other words,it’s not the dollar losing value; it’s the economy expanding.
What those promoting the“debasement”argument misunderstand is how economics and modern inflation work. What the chart shows, in today’s economy, is only theloss of purchasing power of idle, or uninvested, dollars. Dollars that sit uninvested lose value relative to inflation over time.That is not a collapse of fiat currency. It is a signal to put capital to work.While the“gold bugs”argue that gold protects against debasement(i.e., inflation), which is true, so do3-month T-bills and US Treasury bonds on a real, inflation-adjusted, total return basis. However, that same $1 invested in the S&P 500 index was by far the best protector of the purchasing power of the U.S. Dollar
Most importantly, the term“debasement”doesnotrefer tothe collapse of currency.It is only a“reflection of inflation on uninvested dollars.”Inflation erodes purchasing power if income and returns do not keep pace. A $100 bill in your pocket today buys less than it did in 2010, only because the general price level of goods and services purchased in an expanding economy rises over time. That effect is real, but it is a natural consequence of economic activity and monetary policy interacting with growth, not a structural collapse of confidence.
In reality, the dollar remains dominant. As we discussed in depth in“The Dollar’s Death Is Greatly Exaggerated:”
Roughly 80 percent of global transactions use the U.S. dollar as the unit of account or settlement.
The U.S. dollar still accounts for nearly 60 percent of global foreign-exchange reserves held by central banks.
There is no alternative currency or asset with the depth, liquidity, and institutional trust of the U.S. dollar.
Source: ZeroHedge News
