Why Hold Dollars?

And as our bridges turned to dust
A useless theme was quite enough
--Modern English

Increasingly, I find myself questioning why I would want to hold significant quantities of dollars given our untenable situation. Pondering our collective monetary and fiscal and monetary actions, I have difficulty not concluding that, contrary to popular rhetoric and spin, we have long since left the cliff, and that a primary casualty of the inevitable crack up at the bottom of the chasm will be the dollar.

Yet, in the face of rampant money printing, runaway government spending, and massive debt issuance and monetization, people generally remain sanguine about the greenback.

Lessons from Weimar and elsewhere suggest that people hold onto depreciating currency long after warning signs become clear. Whether this is due to ignorance, denial, hope, et al does not matter. We know that generally people stick to failing courses of monetary action far longer than they should.

We also know that confidence in a depreciating currency changes quickly. When people finally catch on that their money is quickly losing value, then there is a rush to swap out of paper and into things. It is at this point that garden variety inflation ends and hyperinflation begins.

God willing, I do not want to be one of those casualties that future generations, with benefit of hindsight, curiously question. "How could Ford have held onto his dollars, given the warning signs all around him that those dollars would become worthless?"

This is a significant change for me. These pages have often considered the inflation/deflation debate with deflation generally maintaining an edge. From where I sit, chance no longer favors deflation.

As such, my primary personal finance resolution this year is to reduce exposure to the dollar. I plan to lower cash balances in favor of other asset classes. I am not enamored with financial securities such as stocks and bonds here as their prices have been severely distorted. These distortions are likely to become, um, undistorted when people broadly recognize the dollar as a seriously flawed store of value and forces of natural law subsequently kick in to reclaim systemic balance.

Instead, I prefer hard assets. Gold, silver, other commodities, other 'alternative' assets. I will also consider several improvements to my home as I would rather do those improvements now before prices rip higher.

The trade off is that I will have a smaller cash cushion for daily living, and less financial firepower to buy bargains should I be wrong and we get a general price decline (i.e., dollars worth more) rather than a general price increase (i.e., dollars worth less).

Given my view of the world, however, I would rather sacrifice some liquidity than be left holding worthless confetti falling from a paper blizzard.

position in SPX, gold, silver, commodities