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Structural Money Devaluation In The West

February 17, 2011 by  

Structural Money Devaluation In The West

When facing questions about foreign currencies, a common response is, “I don’t care about currencies. I buy my milk, butter and bread in United States dollars, I get paid in U.S. dollars and my mortgage is in U.S. dollars.” However, given the large and potentially severe consequences of today’s economic situation and global structural changes, everybody should be aware of the importance of currency diversification and how you can manage the risk of future currency devaluation.

Many Western nations have entered a prolonged period of deep structural change that will take many years to complete. For decades, Western nations enjoyed increasing prosperity and that resulted in a steep increase of government spending and a never ending increase in the build-up of welfare states. This has caused an accumulation of huge amounts of government debt in many major economies.

Now, changing demographics, chronic overregulation and the wrong economic incentives could make the problem even more severe. Therefore the ongoing liquidity injections, such as the European bailouts or quantitative easing in the U.S., could eventually force a further and potentially severe devaluation of money and currencies.

Loss of purchasing power affects everybody and almost everything. The chart below shows by how much the U.S. dollar has already devalued in the last 10 years against other major currencies: The euro, Swiss franc, yen and Singapore dollar.

*EUR=Euro / CHF=Swiss Franc / JPY=Japanese Yen / SGD=Singapore Dollar / Change in % vs. USD (Base 100%)


This chart illustrates how important currency diversification is and how global investments can help investors to protect against the adverse effects of the domestic situation.

Many investors underestimate the very powerful benefits of proper currency diversification, if they think about it at all, but recent history shows us how important a sound currency investment strategy is. Let’s look for example at the events in the global economy last year, they are highly alarming.

The sovereign debt crises in many countries have worsened significantly and we are facing a situation today where a large number of governments, countries and individual states are facing technical bankruptcy. The situation is most concerning in the U.S. and in Europe where there are plenty of reasons to believe that both regions, and with it their currencies, are heading for a long-term structural downward trend. Of course, central banks and the IMF can put together bailout programs and the Federal Reserve can engage in further quantitative easing programs, but all of these measures will come at a price.

It would be outright foolish to believe that all this liquidity can be created out of thin air without real economic consequences. These consequences do not come overnight but might actually take two to three years until we see the negative impacts — in this case rising inflation — in daily life. The price that needs to be paid longer-term is eventually borne by everybody through destruction of wealth and the loss of purchasing power.

It essentially acts like another tax on everybody at a time when tax rates are already at painful levels. This situation can only be avoided by governments gradually cutting deficits and redirecting spending into sensible expenditures that produce real economic value for its citizens.

Unfortunately, the deficits are increasing. The U.S. government’s debt is on track to reach $15 trillion by the end of this year and is therefore exceeding the size of U.S. gross domestic product for the first time since the years immediately after World War II.

In the absence of dramatic spending cuts, redirected investments and savings programs, this debt burden will most likely continue to rise because just servicing the large debt burden is a real challenge already.  The chart below illustrates the sharp rise of the U.S. debt burden since the mid 60s.

Despite the fact that European countries have announced large spending cuts, the situation is not better there than in the U.S. While the deficits might be smaller in the future, the European Union and the euro will face a number of serious challenges in the years to come that could even put the future of the European Union — as we know it — at risk.

 The recent bailout programs for Ireland and Greece and potential future rescue operations for troubled member states are a real stress test for the Union. It seems that there is an increasing reluctance among individual member states to help countries which are facing financial distress. This has lead to a rise in anti-Euro sentiment in certain states, especially Germany and France. In France, the far right wing party “Front Nationale” is becoming a lot more popular and their main political goal is to exit the European Union and its common currency system, not a very encouraging prospect for Europe.

The enormous liquidity injections that we have seen in the past three years are a very big and risky experiment, with the outcome remaining highly uncertain. It is understandable that today’s central bankers are very concerned about the reemergence of deflation and its destructive effects on the economy. One only needs to look at the situation in Japan, where the economy has been in deflation for most of the last 20 years.

However, Japan is a different situation given that its economy needed a lot of restructuring, a process that has still not been completed. Japan’s debt situation looks even worse at first glance; however, taking into consideration the large private savings of its people, Japan can better afford the significant debt burden because most of it is financed from domestic sources, a truly significant difference to the situation in the U.S. today.

The Federal Reserve will probably continue to keep rates at these very low levels in an effort to stimulate the economy as much as possible. But eventually the market demands a higher yield for U.S. government debt, given the fact that its financial situation continues to deteriorate. This could lead to a further decrease of the U.S. dollar and rapidly rising price levels through the import of inflation.

Don’t forget, many goods such as food, energy and commodities are priced on a global level. Given this situation, it is even possible that we might see stagflation (rising inflation with little to no economic growth) appearing on the horizon.

With the outlook for the U.S. dollar and the euro remaining quite negative, it is highly important to keep some savings and investments in other currencies which are stronger and might be gaining in value in the years to come. There are plenty of attractive currency investments to choose from globally.

Don’t expect central banks to print less money and don’t hope for governments to spend the tax money more wisely. The only way to protect against the forced currency destruction is to be proactive and start investing globally.

–Daniel Zurbrügg

Daniel Zurbrügg

is the Managing Partner of Alpine Atlantic Global Asset Management, a Swiss-based independent investment management firm. The firm provides clients with independent investment management, asset protection and family office services and is the issuer of the global investment newsletter Echo From The Alps. With a global network of partners, Alpine Atlantic's aim is to provide clients with true "turnkey" solutions for global investing. Prior to setting up Alpine Atlantic, Daniel held various positions with other banks and financial companies. Daniel is a Chartered Financial Analyst and regular guest speaker at international investment conferences.

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  • s c

    Recently, other currencies have felt the impact of being addicted to a ‘world currency’ that is imploding. When those other currencies are free from the dollar (and geniuses like Ben the Boob continue to crank out dollars 24/7), then people will at last understand what it means to let a private corporation control the nation’s money supply.
    If you know someone who lived in Germany before WWII, ask them what happened to their currency and their standard of living. People like Ben the Boob have all but guaranteed that the same thing will happen here.
    ‘It can’t happen here’ is utter and absolute b s. Our government can’t be trusted to do the right thing, and the American people will again be expected to pay for it.

    • Give me a Break!

      I remember in school, in history class, seeing a picture of a man with a wheelbarrow full of money going into a grocery store just to buy a few groceries. Our currency is most definitely becoming worthless, and how sad it is that we have history books that show what happens, yet our government leaders ignore them and continue to make the same mistakes.

      • vicki

        Because it is not a mistake. They are TRYING to break the back of the most successful capitalist system in recent (maybe all ) history.

      • http://naver samurai

        Sounds like the Weimar Republic after WWI and before Hitler came to power. 하나님 하고 나라를 위해서! FOR GOD AND COUNTRY!

      • James

        Give me a Break, I agree but the demise of our dollar was not a mistake. That’s been planned for some time, and the Amero currency is already waiting in the wings to place the dollar, when the North American Union is formed. Our northern and southern borders are no longer defended. But rather than invest in other currencies, I would buy silver, it will keep pace with inflation as the dollar is fased out. All currencies will eventually be replaced by the Mark of the Beast.

    • Bruce D.

      If France decides to leave the European Union will those who backed Lincoln’s Civil War also back a war on France by the rest of the EU to preserve the European Union. I do not think it will come to that but the idea puts the Civil War in a new perspective.

      • ValDM

        France and Germany are considering leaving the EU? Sounds like an idea whose time has come. Many people in the U.S. would like to see their states secede from this union. If France and Germany leave, will this give our states impetous to leave as well?

        • Bus

          Perhaps the era of the nation-state is drawing to a close. The large states do have some advantages but when they can no longer protect the people’s (economic, property) rights people may decide smaller is better.

  • Bob L.

    Fiat currencies are all subject to the same fate – becoming worthless.
    Better to “buy” gold and silver, the kind you hold in your hand, not ETF’s or other paper varieties.

    • Patriot

      Hi Bob,

      When you buy all this gold & silver that you can touch, where do you store it for easy access? If is difficult to know, especially silver could get heavy, etc. Safety Deposit boxes in a financial crisis can be limited.

      • GenEarly

        In your home,behind your 45acp

      • FireFly

        In a real crisis (like the one we are headed for) you will not even be allowed into your safe deposit box without a government official there, and weapons, gold and silver coins, and perhaps a few other things will not be allowed to be removed. Ask your banker and he will not be able to verify or deny this unless he lies. It’s illegal for him to do so.

    • http://donthaveone Beberoni

      And from what I understand, as you buy this silver and gold, it is all registered as to who owns it and how much. That way when it all comes down, the feds know who has the gold and where they are at to make it easier for them when they come to get it. In reality, when it all comes down, no amount of silver or gold or money is going to help you. There are some who have spent their whole life in search of their god money, and no matter how much of it they have accumulated, it is all going to go to someone else when they die. What a waste of time.

    • James

      Bob L., I agree, except I wouldn’t buy gold. Possession of if will be outlawed, like FDR did in the 1930s.

  • Loyd Smith

    “Quantitative Easing” is a con-man’s phrase for devaluation of the U.S. Dollar, has already resulted in unacceptable rises in the cost of nearly all goods and services used domestically and will ultimately kill this nation’s economy. Again, it is a con-man’s solution to a problem that can only be cured by hardening our dollar and encouraging domestic PRODUCTION AND USE of necessities such as energy and food.
    Any other action can only result in steadily rising prices and national dependence on foreign goods and services. “Quantitative Easing” is a recipe for international economic collapse.

  • http://none patrick and rita o’sullivan

    Daniel,if you live in ireland or any other european country,what would be the best currency to put 50,000 euro’s in to(in the short,medium and long term–besides gold.regards.patrick

    • Bruce D.

      I am not an expert but a safe currency in my opinion would be the Canadian dollar. Canada has a lot of oil and the banks remained relatively stable during the 2008 crisis. The NOK is attractive because of the oil supplies and what appears to be a financially sound government. Australia trades a lot with China. Their currency is doing quite well and interest rates are high.

      • http://personalliberty Rocky

        Just curious. How hard and would it be possible to open a Canadian bank account? Converting US dollars to Canadian dollars might be a way to keep ahead of inflation.

        • Bruce D.

          All banks have a know your customer rule now imposed by the U.S. You would need a passport, an electric bill which would show your residence no matter where that may be, and a statement of where you obtained the money. You can buy Canadian Bank stocks in America or open a FX account and put your money in anything you want.

  • Patriot

    With very few comments on this article makes me believe that many people do not understand our monetary system. When money is printed with no value basis, even worse currency based on debt will eventually fail! We need to learn the truth about the Federal Reserve and do everything possible to take corrective action now, before it is too late. When our President puts forth a budget with the one time Stimulus Package still in there, as if We the People are so stupid not to recognize it and then touts that he is cutting the budget. We cannot stand for or with Lairs anymore, we need to band together, and that means all of us! If our currency collapses, we will all suffer beyond our comprehension. For a better understanding of when our currency and republic died I would suggest reading “The Creature From Jekyll Island”.

    • Richard Pawley

      “If our currency collapses, we will all suffer beyond our comprehension”. I have been writing about this for years but few seem to understand and many are not concerned but they will be if they have not prepared. The idea of union riots in this country and food shortages seems almost impossible to the man in the street but it is highly probable that both are coming if congress doesn’t severely cut the waste and tighten the belt so everyone feels it because when the collapse comes EVERYONE – WILL – FEEL – IT! I have long believed it was inevitable and I see nothing yet to make me change my mind. We have given enough to the banks. As I said in both my books, no one on earth could pay the losses of all the derivatives that the Federal Reserve Banks of the world have on their books if they don’t create inflation, so create inflation they must. There are no aliens willing to buy the planet which I said in LEAVING SOUTH CAROLINA quoting an important member of the government. If all you have is paper money a time is coming when you will be poor indeed. I knew a guy whose businessman father left Germany with a quarter of a million dollars, a fortune in that day, and when the ship reached the USA it had fallen to $2500 dollars but it was enough to get him started and work his way up but never as much as he had previously. We have a problem in the world today and it is called GREED as in the ME GENERATION and “I want it all!” All Federal Reserve Banks in the world are printing money. They call it QE (Quantitative Easing) but it’s really just creating money out of thin air. If you have so much money, land, gold (I don’t trust silver – it’s done great so far but could crash even faster than it has gone up – still a lot of people collect silver coins but that is a different story) and you have non-perishable food and you want to speculate then go for foreign currencies but you had better study all there is to know about the country before you splurge and most important of all, know when to get out. If your country allows you to buy gold and you are rich – I doubt many rich read this – then do so, and if not try platinum which is 14 times rarer than gold, though harder to sell. However, eventually all currencies are going to fall victim to a collapse because all have the same disease, just in varying degrees. There might be one or two good currencies that are good right now but they are a speculation because they are paper just like stocks and bonds. No, I cannot tell you when you will see the unions rioting and the stores empty here and it is possible that this could be averted but it will take a congress with more backbone that I have ever seen. It’s not hopeless but with cotton up over 40% this year and manufacturers saying that clothes will be 15 to 20% higher by autumn and vegetables are up 13% and wheat is up that much in just the past 90 days. For those who have gold they would be wise to keep it until they must sell it to the government or to buy food but it has always been a store of value. Peter Munk, chairman of the world’s largest gold producer (Barrick Gold), said in a recent interview at Davos “If you are a utopian, if you believe the problems of currency, the problems of terrorism, the problems of unrest around the world will all be resolved by the end of the year, then gold would have a difficult path. If you believe like I do that we bought ourselves a temporary peace from the panic of last year and the year before, [and] that the fundamentality of the problems are long term still issues, then your attitude will be a bit more positive toward gold.” Another quote I like is from Gao Xiqing, the Vice Chairman of the China Investment Corp. At that same World Economic Forum in Davos he said that central banks policies are hurting the value of money. His quote: “You know money is gradually becoming not worth the paper it’s printed on!” Since China is stuck with hundreds of billions of our dollars they should have a pretty good grasp on things. Sadly we do not. Dum Spiro Spero.

      • Vigilant

        Given the global nature of the banking/commerce system, I have serious doubts about swapping around currency investments. At best, it would be a short-term (with fingers crossed) venture, as any collapse of a major world currency will bring down the whole house of cards.

        When the Long Emergency comes (and it may be with little to no warning), the only good investments will prove to be food, water and firearms (with lots of ammo).

        • http://donthaveone Beberoni

          That is correct. So many put their faith in money and gold and silver and material belongings, and those things wont buy happiness, and they wont buy security and life. We all die, and those things they have wasted their time accumulating will be left for someone else to enjoy. Food and water are neccessities for living here on earth. Gold, Silver and Money arent, and there will come a time when again, it doesnt matter how much money you have. True wealth is actually determined by what you give, not by what you have anyways, just so many dont know or understand that.

          • Vigilant

            Good words, Beberoni.

    • Dan az

      Hey patriot
      This is happening now and I havent a clue on how this will work I just know that it is happening.

    • James

      Patriot, It’s too late now, our currency is collapsing. Since the Federal Reserve System was adopted, in 1913, the dollar has lost over 95% of its value. Back then, corn was cents per bushel, now its dollars per bushel. Back then, an ice cream soda, with real ice cream, was a nickle.

  • Max Goins

    Myself and a number of other people I know have purchased Iraqi Dinars with the thought that soon their currency will be revalued. Do you have an opinion, or any knowledge of the future of Dinars.

    • James

      Max Goins, if the Iraqi Dinar is going to be revalued, that could mean it would take fewer of them to buy a dollar. If true, that could be a short-term gain, but I wouldn’t hold any currency for a long period.

  • Bruce D.

    If inflation hits as hard as people say buying a house might be a good option. It would certainly have to go up with everything else.

    • vicki

      That is what happened in the late 70′s. House prices alone went up 3x-4x from 1977-1980. We know this because the title company had to disclose the finance info of the house we bought for 115,000 in 1980. It sold for 37,000 in 1977. It was not a special house.

      • Bruce D.

        Many people who have their money in the right place will become rich with hyper inflation. For most of the poor and middle class who never seem to know what to do, it is a steep tax hike.

        • James

          Bruce D., Inflation doesn’t make one rich. It just means the price of things one owns has gone up as the value of the dollar diminishes. The value of a home, for example, goes down as it ages (like cars). If the price goes up, like we experienced with the housing bubble, it just means the dollar became less valuable.

  • http://PersonalLibertyDigest Jack B

    Dan, what do you see happening in Iraq. They have some stability now and lots of oil, do you think their currency will go up in value. Thank you. Jack

  • OtherTim

    Continuing down this road we are currently on, will collapse the dollar, unfortuately, not many people know what that means. We still need to provide energy and food to help stablize the economy. How will history look at a society that reverted to putting food (corn based ethanol) in our gas tanks when we have available gas/oil under our feet? As we move toward other energy sources, we cannot close the spigot to the point we strangle ourselves.

  • http://com i41

    If you want to see stupidity and goofy crap spouted as facts. Watch Tax Cheat Geithner try to explain Oumnnutts budget, and how the fuzzy math is explained as cutting the budget. Since the marxist muslim moron and his drooling lap pooches in Congress have wasted a trillion dollars and accmplished nothing but, except put more people out work and couldn’t create a job, like most government slubs.

  • Lou

    RE: Canadian banks. Many U.S. cities have Canadian banks which are really U.S. banks chartered under U.S. laws. They are affiliated or owned by actual Canadian banks. You can open an account in any of them but that doesn’t allow you any special rights to “move” money across the border. If have an account and you want to buy Canadian dollars they will order it for you at the current exchange rate plus an exchange fee. If you buy more than a certain amount they have to report the transaction to the feds. I think the amount is 10k but ask. If you trying to move megabucks I don’t know how to do it but corporations do it all the time. Good luck

  • Thomas Avery Blair

    Response to question: Where do you keep the precious metals you keep at home?

    (1) Do not keep it in a safety deposit box…if found in the event of a probate-court-opening issue, the precious metals and and even currency is commonly confiscated and not returned to the estate. Been there…it happens.

    (2) Gold can still be confiscated by the U S goverment if the President takes issue over gold ownership in a “national emergency.”
    FDR confiscated gold from private owners in 1933 and it can happen again. You might care to know that monetized silver is not mentioned in that confiscation edict that can be made effective at will “in a national emergency situation” (up to and including the collapse of the U S greenback?).

    (3) Keep precious metals in varios places in your home, with the least valuable in plan view (like sterling silver with stainless steel utinsils, decorative items, etc.). If your valuables are packed away all over your home, it will take considerable time for anyone to find it all…and by delaying the process you also heighten
    the chances of the culprits to get caught by the police or by you if you have your own 2nd Amendment “equipment” and ammunitions, and know how to use them. I know people who keep valuables in soup cans (replicas usually of the real thing), others in oatmeal boxes (or replicas of same), fake milk containers, behind picture frames, as a part of the underlayment of a kitchen counter, inside a wall (like behind the medicine cabinet), etc., etc. A large safe is okay, but unless it weights a great deal of weight thieves will remove it for opening someplace else. It is a good idea to have a security service on your home with a “panic button” and voice inquiry when the alarm sounds…and loud noise alarms also still are a good idea as well…but make sure they have battery backup if the power is cut off. And the family dog is useful, especially if it is “territorial” and makes lots and lots of noise if an intruder tries to get in (Hint: Smaller dogs are harder to deal with by crooks that larger breeds).

    (4) If you are unable or unwilling to defend your property simply be prepared to lose your property and even possibly your life when the dollar collapses and the street gangs go on rampages seeking food, shelter, property and revenge on the people who dared to prepare for the calamity and publicly announced that they did or are doing so.

    (5) Ask your public safety officer what he or she would recommend and at least consider carefully what they tell you in light of the things I’ve mentioned above.

    I am dead certain that the greenback will indeed shortly fail and leave most Americans destitute of ways and means to defend themselves, their families and their wealth. God help those who have no defense plans or weaponry…because few if any others will.

    Respectfully submitted,

    Thomas Avery Blair, EA

    • Vigilant

      “FDR confiscated gold from private owners in 1933 and it can happen again. You might care to know that monetized silver is not mentioned in that confiscation edict that can be made effective at will “in a national emergency situation” (up to and including the collapse of the U S greenback?).”

      One has to suspect that the net would be widened to include silver if it came to that (silver now is more rare than gold, due to its use in electronics, etc.).

      As for hiding it, you’re going to be out of luck unless you bought it in the secondary markets (eBay, etc.). I believe gov’t knows where a hefty chunk of that stash is, and when they come to get it, what are you going to do?

      It strikes me that gov’t came after it in WWII because our paper currency was backed by gold. Since it is no longer backed by precious metals, they would have to delare all currency null and void and then issue new, gold-backed specie.

      I don’t know, just thinking out of the box here.

      • Al Sieber

        Vigilant, FDR confiscated the gold in 1933, I think he payed $20.66 a oz., then 6 months later he raised the price to $35.00 a oz. and sold it to Europe. if gold wasn’t important, why won’t they let us audit it? in the Health Care Bill there is a clause that they can confiscate gold, also, in Jan. 2012, you will be taxed on any transaction over $600.

  • vicki

    Supply/demand. Its the law. It effects EVERYTHING. Print more paper and the value if each piece goes down unless you have a matching increase in demand for the same paper.

    Money is not magic. Money is merely a method to greatly increase the efficiency of barter.

  • LongBoat

    Ammunition will be invaluable.

    Just as an intriguing tidbit the nickel is the only U.S. currency that is actually worth anything. The U.S. nickel has been cupronickel since 1946: 75% copper and 25% nickel with trace amounts of manganese.
    Copper is currently about $4.60/lb. Nickel is currently about $13.00/lb. 120 five-cent pieces is $6.00. Those 120 coins contain a pound of copper and 1/3 pound of nickel. That’s about $8.93.
    If you deposit $6 in any bank in the nation, then withdraw your money as nickels, you get almost $9 worth of metal. That’s an immediate 50% return.
    You can’t legally cash in on it now due to anti-smelting laws for pennies and nickels were introduced in late 2006. But the bullion market for cupronickel coins will develop.

  • WayneT

    Listen to this audio. It will scare you to death of what they are saying is going to happen to the US Dollar within the next year. Before you watch it, pull up your chair, get comfotable, and have your favoite drink, as the audio is quite long. It may not be anything, but it scares the hell out of me just the same.

  • http://donthaveone Beberoni

    It will come down in the end, before Christ comes again, to a One World Government with a one world currency. Its going to happen, whether we like it or not. It will all come to pass, whether I like it or not.

  • Robert Pa.

    This is the same old “Our Money is Better Than Yours” crap that has been pushed for 200 years or more. The German stock exchange is “BUYING” the NYSE and will run it into the ground just like theirs.
    If our “Icon” businesses are so lousy, why do they want to buy all of them up??? Germany, Japan, China, Russia just can’t get enough of our stuff. And they ship “JUNK” products that are so overpriced for what they are. Why are we so “STUPID” to think that their stuff is so special???

  • Al

    Complaining, repeating what is happening or debating on what to do… yet do nothing. If you are waiting for the perfect solution before taking action… best of luck to you. Like Patriot suggested, read “Creature from Jekyll Island” by Edward Griffin to get a total understanding on how the Federal Reserve System has created the designer’s debt that cause the USD to have lost 95% of its purchasing power. Imagine what happen when the USD loses its international reserve position?

  • tahnee

    Gold and silver are fine until the government calls it in and issues a new currncy worth very little. If you don’t turn it in there will be stiff penelties.This was hidden in the healthcare bill of all places.

  • jopa

    tahnee;The US government is going to give every American resident two to three ounces of gold to cash in for a vacation next year.That was hidden in the health care bill of all places.Wanna buy a bridge?

  • Don

    Ok what am I do if I can’t legally hold gold or silver?? Will they take my Burpee seeds that grow corn for us???


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