South central kansas | FW30 - 2/14/2026 08:50
This debasement of the currency has been all around the world, and throughout recorded history... It is a primary driver for owning assets, like land, precious metals, and stocks, instead of bank CDs, bonds, or cash.
From Macromicro:
Post-Dollar System Endgame
The irreversible nature of fiat debasement raises fundamental questions about the international monetary system's future direction. While massive network effects and usage inertia make the dollar difficult to replace immediately (the dollar internationalization index remains around 60% as of 2025), the international community continuously seeks "post-dollar era" alternatives.
Experiments with supranational currencies (the euro), decentralized currencies (cryptocurrencies), and multilateral systems (China's mBridge project for cross-border payments using central bank digital currencies) all attempt to address dollar system flaws. Yet each faces distinct obstacles: the euro lacks unified fiscal union backing, cryptocurrencies suffer extreme volatility undermining store-of-value functions, while multilateral mechanisms struggle with governance trust issues.
Looking ahead, we see two likely scenarios:
First, dollar dominance continues. Under unresolved fiat debasement and debt accumulation pressures, gold will persist as a hedge against declining fiat purchasing power. Gold's portfolio allocation value will continue rising. Global official gold reserves have already climbed to their highest levels since the 1970s, reflecting this strategic shift.
Second, the world moves toward a multipolar currency system. While the renminbi may not fully replace the dollar, as more BRICS nations and Global South countries join multilateral mechanisms like mBridge, new order will gradually take shape. To avoid reserve asset allocation depending solely on trade volume (which could give single nations like China disproportionate influence), countries may increasingly incorporate "gold reserve quantities" as national-level credit backing.
Debt Structures Make Fiat Currency Depreciation Inevitable
Global public debt reached $38 trillion for the United States alone, with interest costs at historical highs. The IMF projects budget deficits will remain around 8% of GDP over the next five years. Beyond America, major economies are pursuing fiscal expansion: Europe and Germany have pivoted toward fiscal stimulus to support domestic demand, while Japan under Prime Minister Sanae Takaichi advocates "responsible active fiscal policy," including food consumption tax cuts and raising defense spending to 2% of GDP, pushing 10-year JGB yields above 2.3%.
The Bank for International Settlements’ recent working paper “The Perils of Narrowing Fiscal Spaces”; issues similar warnings. As global public debt escalates, monetary policy space faces "fiscal limit" constraints. High debt structures create an invisible "interest rate ceiling," limiting central banks' ability to raise rates against inflation (avoiding debt default and unanchored inflation expectations). During severe recessions, central banks may fall into deadlock when fiscally permissible rates drop below the "zero lower bound," unable to raise rates to suppress inflation or effectively cut rates for rescue. Ultimately, central banks face a cruel choice: debt monetization (printing money to absorb excess debt) or accepting "fiscal dominance" (allowing inflation to dilute debt value). Both paths mean loss of central bank independence and fiat purchasing power erosion.
Since 2020, the S&P 500's nominal returns exceeded 135%, yet measured in gold terms, they actually declined nearly 30%. Similarly, holding US 10-year Treasuries produced real returns down approximately 33%. Asset price nominal growth largely stems from "monetary illusion" rather than real value or purchasing power gains. Long-term fiat debasement has become nearly irreversible. Since the 1971 Bretton Woods collapse, the dollar has depreciated roughly 99% against gold.
We have repeatedly noted gold's changing status in global official reserves. Its market capitalization share now exceeds the euro, trailing only the dollar, and for the first time in 30 years surpassed overseas official holdings of US Treasuries. As of January 2026, global gold market capitalization peaked at $37.6 trillion, approaching total US debt. From another perspective, perhaps we are not in a gold bull market but witnessing gold's automatic compensation and repricing relative to fiat currencies.
. While Warsh’s push for Fed reform may stir concern, his hawkish pivot toward balance sheet tightening is fundamentally unfeasible in the current climate. Financial conditions remain accommodative. We view the "Warsh-driven" volatility as transient market noise rather than a structural shift.
Regarding gold’s secular outlook, Harry Dexter White’s 1940 insight in The Future of Gold remains the definitive thesis:
"The only way for any country to induce investors to hold its liquid claims for long periods is to establish complete confidence that its currency will not depreciate in the foreseeable future. Since no major country is prepared to surrender its monetary sovereignty, the capacity to create such confidence is strictly limited. Therefore, investors had preferred and would continue to prefer gold to currencies or other liquid assets. "
This eighty-year-old principle remains the bedrock of today’s gold investment case.
Whether dollar hegemony extends or multipolar systems emerge, gold will continue playing a core role. The recent violent correction, triggered by Warsh headlines and margin-call cascades, represents speculative froth clearing rather than fundamental deterioration. Fiscal expansion extends gold's long-term upward momentum. De-dollarization and overseas central bank purchases will continue supporting higher prices. Major pullbacks instead become long-term positioning opportunities.
Against this backdrop, we have converged on core views for equities, bonds, and gold:
Equities: Fundamentals lead, liquidity assists. Unlike last year, as policy stance gradually moves toward neutral and Fed Put expectations fade after Warsh assumes office, liquidity's role this year shifts to supporting, with equity performance increasingly dependent on AI-driven productivity improvements and fundamental growth.
Bonds: Conservative approach under fiscal expansion. The Fed retains 2-3 rate cuts this year. In a non-recessionary rate-cutting environment, combined with this year's expansionary fiscal policy, bond investment takes a conservative approach, focusing on yield collection.
Gold: Long-term upward momentum intact. Fiscal expansion extends into gold's long-term upward momentum. De-dollarization and overseas central bank gold purchases will continue supporting higher gold prices. Major pullbacks instead become long-term positioning opportunities.
Author: MacroMicro (Dylan, Jason)
Editor: MacroMicro (Jordan)
Edited by zenfarm 2/14/2026 20:03
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Gold and the FED
