Good question
It seems to me that the fundamental question we need to answer is "What is going to happen to the exchange value of the dollar?" If the exchange value of the dollar is going to go down (inflation like Weimar Germany), then you want to get out of dollars. If it is going to go up (deflation like the Great Depression), you want to hold dollars. Of course whichever path you take, you have another question - if you flee dollars where do you go and if you stay in dollars, how do you hold them? But first the fundamental question.
The exchange value of the dollar, like the exchange value of everything else, is determined by supply and demand. There are two kinds of dollars: actual FR notes printed by the Fed, and credit created by the Fed and its running dogs (the banks). Both kinds of dollars will cause inflation when their supply outstrips demand. But there is an important difference. In an economic collapse, the dollars created by fractional reserve bank credit will evaporate as people default on loans. POOF!!! those dollars are gone. But Fed notes will not evaporate. So, if the credit bubble collapses and the Fed does nothing about it, the supply of dollars will be reduced by the amount of the credit bubble. And that is a LOT! This is what happened in the Great Depression. The credit bubble collapsed, people's savings, which had been loaned out, evaporated, and the money supply dramatically decreased. In that scenario, the value of the Fed notes - the dollars that did not evaporate - increased dramatically. People who had their cash stuffed in their mattresses did well. People who had trusted the banks and allowed their money to be loaned out were screwed.
So the critical question on this point is what will the Government and the Fed do? If banks are going under, hundreds of thousands of people are losing their homes, insured savings accounts are evaporating, businesses are going under in record numbers, unemployment is going through the roof, social unrest is spilling out into the streets, government tax revenues are plummeting at all levels, and people are clammoring for government handouts, what will the government and the Fed do? Will they allow it to happen and simply say "we have no money"? OR will the government PRINT money? I suspect the later BECAUSE it seems easier and politicians will take the easy way, AND because it will ease the damage most for the insiders who will get the inflated dollars first. Just like inflation has always worked, but on a vastly accelerated basis. If the printing of new money fills in the hole created by the collapse of the credit bubble, we will not have deflation.
But there is more.
The government and the Fed have been increasing the world's supply of dollars for a LONG time. The only reason we haven't seen worse inflation is because of the huge demand for the dollar around the world as the currency of international trade and the reserve currency of most countries. But that situation is changing. Many countries are starting to shy away from the dollar because it is starting to show serious inflationary weakness. If you are holding a trillion dollars in reserve and those dollars are losing 10% of their values annually through inflation, you are losing a LOT of money. And if you are doing business internationally and the dollar is fluctuating wildly, it makes business calculations more difficult. There is a movement afoot internationally to look to currencies other than the dollar for reserve holdings and for trade. The benefits the US has reaped as a result of being able to print "the world's money" have not been lost on the Chinese, the Russians or the EU. They are all looking to have their currencies replace the dollar.
Over half of all dollars in circulation are in the hands of foreigners. IF the international community dumps the dollar, the total demand for the dollar will drop dramatically. Remember that it is supply AND demand that determines the exchange value of the dollar. If the demand for the dollar drops precipitously because of international rejection, the value of the dollar will follow.
This is a long-winded way of getting to the point: if the international community continues to use dollars as they have in the past, and if the US government and the Fed allow a deflationary collapse and default on programatic obligations, then we will have deflation and the dollars in your mattress will be valuable. Although the dollars in most investments will evaporate.
But if you think, as I do, that our government will print money in vast quantities to try and stave off the collapse AND to pay off the insiders and if you think, as I do, that the dollar is going to be dumped by the international community, then there is going to be inflation. Hyper inflation. And in a hyper inflation, the dollar will lose all of its value no matter what form you hold it in.
So what to do with your money?
If you think there is going to be a deflationary collapse, you should take all your money out of all investments and hold the actual cash. This kinda sucks because we already have 10% inflation so your cash is rotting in the vault. But NO investment is going to pay 10% anyway, so if you hold dollars now, it is only a question of how much value they lose unless and until there is a deflation. But if ther IS a deflation and you have dollars in hand, you will be king! Of course if you bet on deflation and get hyper inflation instead, you have lost everything.
If, on the other hand, you think there is going to be inflation, you need to get out of dollars entirely. Some foreign currencies and commodity stocks may be good, but most foreign currencies are inflationary too. And I frankly don't trust the stock market now. I doubt that ANY stock can keep up with hyper inflation. So I believe that to weather hyper inflation, you need to convert your dollars to hard assets held in hand. Precious metals, guns, ammo, food, clothing, fuel etc. If we have a hyper inflationary collapse, we are going to have a deeply crippled economy working on barter at first and later on an underground currency consisting of precious metal coins, cigarettes, canned food and maybe ammo. In any event, even if there is deflation instead of inflation, hard assets hold their value. So you can't really lose. You just may not win big.
That is my analysis.
Good luck.
Of course i'm only a college student and this is only a fake investment class lol
