Originally posted at the ForexFactory on Jan 2, 2010.
Originally Posted by aicccia
Some people believe that the US economy will eventually crash and the dollar, being a fiat currency, will become relatively worthless.
To protect against such an event in the future, and also the probable slow decline of the Dollar’s global power, what currency(euro?) or commondities(gold?, silver?) would be a wise place to permanently store money currently valued in dollars? And which banks and brokers would be the best options for US citizens interested in protecting their money this way?
I am not looking for the best return on my money,…
The U.S. economy crashing really borders on impossible. The Great Depression, depression, great recession scenarios have all been averted with the TARP program and subsequent market stabilization. The dominant question that faces the forex market and countries around the world is how fast will growth be which will impact interest rate differentials, and when will the jobs come back in the case of the United States.
Fiat currencies have survived a far worse period in history. The recession of 1980-1982 suffered above 10% unemployment along with a whopping inflation rate of 10%++. If paper money survived that period they can do just fine in today’s environment of less than 1% inflation and record low interest rates supporting growth. There really is no other viable option besides fiat currencies. Tying a currencies value to a commodity be it gold, copper, soybeans, oil, lumber is not workable anymore. Money is not a commodity it is a medium of exchange.
But if you insist on protecting yourself from a collapse in the dollar then you would have to figure out which currency would benefit in such an environment. If the U.S. faced a collapse that some people are predicting then that would drag many other world economies substantially lower as well. The biggest dollar rally occurred only after the financial meltdown came.
The only other scenario is a world in which paper currencies from most governments fail. Such a situation would be accompanied with lack of rule of law, major riots, hunger, anarchy, etc. Trying to protect yourself in a such a scenario is extremely difficult because property rights and rule of law will not be protected as well as they are today.
Governments may spend too much or have stupid laws but that doesn’t mean that paper currencies or the world are coming to and end…