The following chart shows the dismal performance of the dollar against a basket of other fiat currencies:
This chart is a relative measure of the dollar’s decline. It is relative in the sense that the dollar’s value is measured against other currencies, all of which are being debauched. The once-might dollar was viewed as a safe-haven in times of stress. The rebound in its relative value in 2009 reflects this safe-haven status. That was when the financial world appeared to be coming to an end.
The index contains six currencies. They and their recent weights are shown to the right. The dollar is now approaching its lows again, despite the likelihood of the Eurozone collapsing. The Euro, which some believe is unlikely to survive the economic distress within the Eurozone, is the largest weight in the basket of currencies (approximately 58%). Despite the Euros obvious problems, and its heavy weight, the dollar is weakening against this standard. As some wag pointed out, all fiat currencies sink. Differences in relative values merely reflect the different rates at which they are approaching what Voltaire described as their intrinsic value — zero.
The next chart shows Gold’s performance relative to the dollar:
The price of gold represents an absolute measure of the dollar’s performance. Gold, many argue, is the only true currency, one not backed by promises or created out of thin air. One of its primary advantages is that the supply is immune to political manipulation and relatively fixed as a result of nature’s distribution of resources. It has been money for thousands of years, despite statist government’s attempts to discredit and abolish it.
The above chart shows the dismal performance of the dollar over time. Some might argue that there is a speculative premium built into the gold price. Whether that is true or not is moot. If there is, it only reflects expectations that the dollar will continue to be devalued via the printing press. Charts of other currencies would not look dissimilar.
Gold has had 10 or 11 consecutive years of gains. In 2001, gold was $250. Is this a more reasonable measure of inflation/dollar devaluation? Perhaps.
As the government reaches its desperate insolvency stage, QE is likely to continue as it is the only option left (short of cutting spending by approximately $1.5 Trillion per year immediately) for the US to fund its deficits and pay its bills. Dollar-denominated assets will not do well if the dollar is continued to be debauched.
H/T to reader EBW for two of the charts