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People like Ray Dalio keep saying this, and scores of others have been talking about how fiat currency will fail, but it won't. Globally, no one that matters wa

People like Ray Dalio keep saying this, and scores of others have been talking about how fiat currency will fail, but it won't. Globally, no one that matters wants it to fail, therefore it won't. People like Paul Tudor Jones have been saying that the USD will fail for decades and people should buy gold. Even Peter Schiff has been talking about gold and hyperinflation since before the Great Recssion. All the bears have been completely wrong, except for short periods of time. And they will continue to be wrong. Again, no one that matters wants the USD and UST to fail. Bond vigilantes can't defeat the Fed.

runeks 6y ago
> Globally, no one that matters wants it to fail, therefore it won't. I’ve seen this argument before, and can’t help to think how naive it sounds. Can you name one other case where the fact that we don’t want something to fail results in it being unable to fail? Actions have consequences. No matter how much we don’t want a particular set of consequences to occur, they will if we perform the wrong actions.
- koonsolo 6y ago
  Globally, no one wants a pandemic, therefore...
  - TheAdamAndChe 6y ago
    Globally, no one wants a housing price collapse and global recession, therefore...
    - eru 6y ago
      Actually, the general public kept demanding a housing price collapse around 2008. It's rather tragic. See https://www.goodreads.com/book/show/43062766-shut-out https://www.goodreads.com/book/show/43062766-shut-out for more detail than you ever wanted to know, or check out the author's blog at https://www.idiosyncraticwhisk.com/ https://www.idiosyncraticwhisk.com/
      - api 6y ago
        Housing prices that are too high are terrible too. They effectively lock people out of homeownership on reasonable terms. I would prefer reasonable home prices, which means neither collapse nor bubble mania.
        eru 6y ago
        I agree with your sentiment. But it's not house prices that are important. It's housing affordability, which is better measured by monthly mortgage payments (and rents). However, that was not what happened in and after 2008. Availability of credit collapsed. So owning housing got cheaper for people who could still get credit, but renting did not become cheaper. Have a look at the backlog of https://www.idiosyncraticwhisk.com/ https://www.idiosyncraticwhisk.com/ for more than you ever wanted to know about the topic. (Or splurge on the author's book.)
- teraku 6y ago
  It might make it sound like they are an inactive bunch. But they take action precisely because they don't want it to fail.
  - 35fbe7d3d5b9 6y ago
    Precisely. And it's important to forget those actions aren't just about interest rates and issuing currency. The US dollar will continue to be supreme so long as the United States controls the US Agency for International Development, the Office of Foreign Asset Control, and the US Marine Corps.
- ping_pong 6y ago
  Naive? People on the opposite side of the argument have been wrong consistently for decades. The last time they were right was the Great Depression, almost 100 years ago. I think policy makers like the Federal Reserve have learned a lot since then.
nostromo 6y ago
Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)
- zamfi 6y ago
  This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)
  - nostromo 6y ago
    Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle. 2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon. But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.
    - zamfi 6y ago
      > Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle I guess it depends on your definition of amazing. If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns. Personally, I don't find that particularly amazing, but to each their own!
- throw0101a 6y ago
  And in six of those years (2013-2019) it was absolutely flat: * https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I. I am constantly reminded of Buffett's 2011 take: > Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? > Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. > Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. > A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. * https://www.berkshirehathaway.com/letters/2011ltr.pdf https://www.berkshirehathaway.com/letters/2011ltr.pdf Gold has not been a very useful 'investment' over the long-term: * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/ What are the expected returns of gold given that it has no earnings?
psychiatrist24 6y ago
"All the bears have been completely wrong, except for short periods of time." Unfortunately, those short periods of time are enough to bankrupt people. I don't think anybody is claiming fiat currencies will go away forever.
- eru 6y ago
  > Unfortunately, those short periods of time are enough to bankrupt people. Maybe. But that just means that being a bull is tricky business, too. It doesn't mean that being a bear is good business.
- julienchastang 6y ago
  And those "short periods" are sometimes not so short. The longest bull market in US history was ~5 years, I believe.[1] [1] https://apnews.com/article/84ee301c404539d8731da34128330752 https://apnews.com/article/84ee301c404539d8731da34128330752
eru 6y ago
> Globally, no one that matters wants it to fail, therefore it won't. Currencies have failed before from eg incompetence, without anyone bearing the ill will. (For what it's worth, I essentially agree with your conclusion. But I think this is not a good argument.)
DennisP 6y ago
Dalio takes a long view. His fund looks at the sort of vast structural changes that have regularly occurred over the past 500 years of financial history. It's not a great rebuttal to say he's wrong because the last few decades have been great. And Dalio has not always been saying this. He used to advocate an "All-Weather" portfolio that was 55% US treasury bonds: https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio/ https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio...
eloff 6y ago
He's not saying it's going to fail, whatever that means. He's saying it's going to lose value. Not only can that happen, but historically it happens with 100% probability. We can only argue about how much and how quickly. At some point the US will lose reserve currency status. It's happened to every reserve currency before the USD and will happen again with probability of 1. The question is only how soon.
jeffreyrogers 6y ago
That's not what he's saying. He's saying this: 1. Bond prices are inversely related to interest rates. Interest rates have been declining for 50 years. They are now near 0. They probably can't go much lower, so they can really only go up. 2. If they go up, bond prices go down. 3. Institutional asset managers with obligations (e.g. pensions, budgets) already cannot meet their obligations with the yield from bonds and the bonds are unlikely to appreciate in value. 4. Therefore, it makes no sense for institutional asset managers to be invested in bonds because thta will pretty much guarantee that they will be unable to meet their obligations.

runeks 6y ago

> Globally, no one that matters wants it to fail, therefore it won't. I’ve seen this argument before, and can’t help to think how naive it sounds. Can you name one other case where the fact that we don’t want something to fail results in it being unable to fail? Actions have consequences. No matter how much we don’t want a particular set of consequences to occur, they will if we perform the wrong actions.

koonsolo 6y ago
Globally, no one wants a pandemic, therefore...
- TheAdamAndChe 6y ago
  Globally, no one wants a housing price collapse and global recession, therefore...
  - eru 6y ago
    Actually, the general public kept demanding a housing price collapse around 2008. It's rather tragic. See https://www.goodreads.com/book/show/43062766-shut-out https://www.goodreads.com/book/show/43062766-shut-out for more detail than you ever wanted to know, or check out the author's blog at https://www.idiosyncraticwhisk.com/ https://www.idiosyncraticwhisk.com/
    - api 6y ago
      Housing prices that are too high are terrible too. They effectively lock people out of homeownership on reasonable terms. I would prefer reasonable home prices, which means neither collapse nor bubble mania.
      - eru 6y ago
        I agree with your sentiment. But it's not house prices that are important. It's housing affordability, which is better measured by monthly mortgage payments (and rents). However, that was not what happened in and after 2008. Availability of credit collapsed. So owning housing got cheaper for people who could still get credit, but renting did not become cheaper. Have a look at the backlog of https://www.idiosyncraticwhisk.com/ https://www.idiosyncraticwhisk.com/ for more than you ever wanted to know about the topic. (Or splurge on the author's book.)
teraku 6y ago
It might make it sound like they are an inactive bunch. But they take action precisely because they don't want it to fail.
- 35fbe7d3d5b9 6y ago
  Precisely. And it's important to forget those actions aren't just about interest rates and issuing currency. The US dollar will continue to be supreme so long as the United States controls the US Agency for International Development, the Office of Foreign Asset Control, and the US Marine Corps.
ping_pong 6y ago
Naive? People on the opposite side of the argument have been wrong consistently for decades. The last time they were right was the Great Depression, almost 100 years ago. I think policy makers like the Federal Reserve have learned a lot since then.

nostromo 6y ago

Gold has performed almost as well as the S&P 500 has over the past 15 years or so. Or even outperformed it depending on your starting date. This is amazing given that it’s literally just an inert metal vs the 500 biggest American Corporations. (Comparing GLD vs SPY starting around 2005.)

zamfi 6y ago
This is not amazing, and false for almost any other 15-year period. Gold's value fluctuates a lot over any 20-year span, but the long-term trend is not really comparable to the S&P 500 with reinvested dividends. (At least, since it became legal to own in the US in 1974.)
- nostromo 6y ago
  Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle. 2008 was a sea change in fiscal policy that unleashed worldwide money printing. It isn’t surprising that gold has done very well during this period. And I don’t see that trend changing anytime soon. But in the long-term, I agree with you. Which is why precious metals are a small part of my portfolio.
  - zamfi 6y ago
    > Of course it’s amazing that a pile of rocks can outperform the world’s best companies as an investment vehicle I guess it depends on your definition of amazing. If you assume -- and I'm not saying this is true -- that the value of "the world's best companies" trends at 8%/year with a +/-15% "variance", while the value of "a pile of rocks" trends at 0%/year with a +/-15% "variance", you would totally expect to see long periods where they yield comparable returns. Personally, I don't find that particularly amazing, but to each their own!
throw0101a 6y ago
And in six of those years (2013-2019) it was absolutely flat: * https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM If you bought gold in 2005, you would have peaked in 2011, and not recovered until mid-2020. If you have the nerve/patience to do that, you have a stronger stomach than I. I am constantly reminded of Buffett's 2011 take: > Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? > Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. > Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. > A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond. * https://www.berkshirehathaway.com/letters/2011ltr.pdf https://www.berkshirehathaway.com/letters/2011ltr.pdf Gold has not been a very useful 'investment' over the long-term: * https://www.pwlcapital.com/will-gold-save-the-day/ https://www.pwlcapital.com/will-gold-save-the-day/ What are the expected returns of gold given that it has no earnings?

psychiatrist24 6y ago

"All the bears have been completely wrong, except for short periods of time." Unfortunately, those short periods of time are enough to bankrupt people. I don't think anybody is claiming fiat currencies will go away forever.

eru 6y ago
> Unfortunately, those short periods of time are enough to bankrupt people. Maybe. But that just means that being a bull is tricky business, too. It doesn't mean that being a bear is good business.
julienchastang 6y ago
And those "short periods" are sometimes not so short. The longest bull market in US history was ~5 years, I believe.[1] [1] https://apnews.com/article/84ee301c404539d8731da34128330752 https://apnews.com/article/84ee301c404539d8731da34128330752

eru 6y ago

> Globally, no one that matters wants it to fail, therefore it won't. Currencies have failed before from eg incompetence, without anyone bearing the ill will. (For what it's worth, I essentially agree with your conclusion. But I think this is not a good argument.)

DennisP 6y ago

Dalio takes a long view. His fund looks at the sort of vast structural changes that have regularly occurred over the past 500 years of financial history. It's not a great rebuttal to say he's wrong because the last few decades have been great. And Dalio has not always been saying this. He used to advocate an "All-Weather" portfolio that was 55% US treasury bonds: https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio/ https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio...

eloff 6y ago

He's not saying it's going to fail, whatever that means. He's saying it's going to lose value. Not only can that happen, but historically it happens with 100% probability. We can only argue about how much and how quickly. At some point the US will lose reserve currency status. It's happened to every reserve currency before the USD and will happen again with probability of 1. The question is only how soon.

jeffreyrogers 6y ago

That's not what he's saying. He's saying this: 1. Bond prices are inversely related to interest rates. Interest rates have been declining for 50 years. They are now near 0. They probably can't go much lower, so they can really only go up. 2. If they go up, bond prices go down. 3. Institutional asset managers with obligations (e.g. pensions, budgets) already cannot meet their obligations with the yield from bonds and the bonds are unlikely to appreciate in value. 4. Therefore, it makes no sense for institutional asset managers to be invested in bonds because thta will pretty much guarantee that they will be unable to meet their obligations.