The Weakening Dollar
The biggest threat to United States is rising inflation and a devalued currency. The American dollar is the reserve currency of the world, which means all transactions taking place internationally, happens with the use of dollars. It also means our country can print money whenever the demand arises. However, this unique status has not been a boon, and the U.S. has incurred a massive national debt, which is far beyond its means to repay. The only thing that is keeping the country from going to a level worse than Greece is the reserve status of dollar currency.
Now, even the reserve status of the U.S. currency is at risk, as other countries, especially China, want all its contracts with U.S. changed to the Yuan. Other countries also, who had built huge reserves of the dollar due to its reserve status, have now started to dump it. Secondly, there are also talks about replacing the Bretton Woods agreement, which will dethrone the dollar. Another major concern is that the Federal Reserve Board might start reducing its massive stash of Treasury bonds. If this happens, everyone will start to dump the currency, and it will be devalued permanently.
Inflation is Outdated
This is not something to be happy about, as experts feel the new situation is hyperinflation. The Bureau of Labor Statistics measures inflation in the U.S. This index is calculated by taking into account the price increase of certain goods, and is reported as percentage increase of CPI (Consumer Price Index) annually. However, the goods that are considered may not correspond with the common goods and services that an individual might consume, so there is always certain disparity between CPI, and the inflation’s level people actually experience, which is usually more.
This is a reality and we are inching closer to hyperinflation, due to lack of a strong fiscal policy and inability of the government to keep the currency from being devalued. In such a situation, what steps can you take to protect your assets or wealth?
Gold could be a good Defense against Hyperinflation
Many experts have debated about the various ways you could protect your wealth when a rise in prices seem to be spiraling out of control, and the majority believe gold to be a good defense for hedging inflation. One major argument in favor of this precious metal is that it has stood the test of time. Since ancient times, this metal has been some form of currency, and the most preferred object for exchanging for product or services. The main reason behind this is that the yellow metal seems to maintain its value.
While currencies have a tendency to fluctuate in value and devalue with time, gold has always maintained its value and even appreciated. In this regard, it is important to understand the concept of value compared to the rate. To provide a basic example, suppose you were able to purchase ten bags of wheat for a certain quantity of gold, ten years ago. You will be able to purchase the same ten wheat bags now, for the same quantity of yellow metal. This means the value has remained constant, even though its rate would have fluctuated. In most instances, you can even expect to buy more products since the value of this precious metal would have appreciated. Hence, even if it is facing a bull run or a bear run, the rate does not matter much, as you are more concerned with its value, when you are planning to hedge inflation.
Secondly, almost all countries focus on building their gold reserves, as the metal is universally accepted as the preferred means of exchange. This means, even though U.S. dollar is the accepted currency, you can easily exchange the yellow metal for almost any goods or services that you may require. Even if a direct exchange is not possible, it can always be sold easily, and the money can be used for purchasing the required commodities or services. Therefore, it makes more sense to maintain gold reserves as your wealth, rather than any currency, which inherently has the characteristic of being devalued at some time or other.
Lastly, gold can be bought in very small quantities as well, since coins weighing one and two grams are available easily in the market. This means you can keep buying whenever you have saved some money, and you do not have to wait until you have made enough to purchase a standard bar. Additionally, you need not wait for the prices of this precious metal to come down, as you are more concerned with its value as a defense against inflation.