Your savings are devalued by design

The dollar was originally a fixed quantity of precious metal. The Coinage Act of 1792 defined it as being "of the value of a Spanish milled dollar as the same is now current", the piece of eight, and set its content at 24.06 grams of pure silver, close to the 24.44 of a Spanish coin fresh from the mint. The American figure came from assaying the ones already circulating, worn down by use. In gold, that same dollar came to 1.6038 grams. Anyone could bring metal to the Mint and have it struck, in the words of the act, "free of expense". Money was not issued by the state. You brought it.

Cutting the metal in that coin was not a policy option. Section 19 of the same act laid down that a mint officer who did it was guilty of a felony and "shall suffer death". The law that created the dollar punished by death what is now ordinary monetary policy.

In 1873 the dollar stopped being silver and became gold: the act made the gold dollar "the unit of value", 1.5046 grams fine, and the Gold Standard Act of 1900 confirmed it. You could still bring your own metal to be struck into coins, but gold only. Before 1933 an American could take that metal out. In April of that year Roosevelt banned private ownership of physical gold and ordered it surrendered at 1.5046 grams for every dollar paid out in exchange, on penalty of a 10,000-dollar fine, ten years in prison, or both. With all the metal in, in January 1934 the state devalued the dollar to 0.8887 grams of gold, 40.9% less metal than the dollars it had just handed over for it. It booked a paper profit of 2,800 million dollars on the operation, and whoever had surrendered coins was left holding paper worth less. The same act banned any further coining of gold and withdrew from circulation the coins that were left.

That is what the dollar was from then on: a note representing 0.8887 grams of gold, honoured only to foreign states and no longer to ordinary people. It is the arrangement the rest of the world signed up to at Bretton Woods in 1944. Forty-four countries fixed their currencies to the dollar, and central banks stopped holding metal to back their own money and held dollars instead, because a dollar was a claim on gold sitting in the United States.

It worked while the receipts matched the deposit. The United States issued dollars far beyond the gold it held, financing wars abroad and spending at home, and its reserve fell from 24,299 million dollars in May 1949 until, by 1966, the dollars in foreign hands were worth more than all the metal left in the country.

On 15 August 1971, Nixon suspended the dollar's convertibility into gold. He presented it as a temporary measure against speculators: "I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets." The speculators were governments asking for what the receipt entitled them to, and there was not enough metal to pay them. It was not a pause. The dollar never again represented a market good.

First the metal was yours and the state coined it for you. Then the state held the metal and you held paper that entitled you to it. Then the metal was spent and the paper entitled you to nothing. Dollars kept circulating, and with them every currency resting on them lost its backing too. Since that day no government currency has any backing.

Half a century later, this change in the monetary system has developed into a constant long-term devaluation that falls on the ordinary worker. The average private-sector hourly wage went from 28.43 dollars in January 2020 to 37.64 in July 2026, a rise of 32.4%. Measured in the older unit that same hour of work bought 0.5666 grams of gold and now buys 0.287: almost half.

It is not ordinary goods that rise in price. It is the government currency that is devalued and sees its market price fall against everything else. Measured in gold and silver, prices have not risen, they have come down, which is what an economy does when it is left alone. Goods get cheaper to produce as capital accumulates and the factors of production become more efficient, so the long-term tendency of a market good is for its price to fall, which is what happened right through the Industrial Revolution. What makes prices rise, and what takes purchasing power away from whoever lives on a wage, is a monetary system built on the constant devaluation of the currency.

The distinction is not rhetorical: if you believe prices are rising, you will look for culprits among those who sell. If you understand that the currency is falling, you will look at whoever issues it.

How much purchasing power you have lost since 2020

Start with your own receipts: remember what you paid at the start of 2020 for rent, groceries, gas, insurance. Look at what you pay now. US consumer prices are up 29.4% between January 2020 and July 2026.

The basket that cost 1,000 dollars now costs 1,294, so your 1,000 dollars buy 0.773 baskets: your savings have been devalued by 22.7%.

Now imagine that instead of storing your earnings in inflationary government currency you had saved in gold, a unit of saving and exchange thousands of years older than the US dollar. During the same period the gram went from 50.18 to almost 131 dollars, and silver from 0.578 to 1.89. Net of inflation, whoever saved in gold has 101.6% more purchasing power today, and whoever saved in silver 153% more. That 1,000-dollar basket was worth 19.93 grams of gold; today, 9.9. Measured in dollars it has become 29.4% more expensive. Measured in gold, it has become 50.4% cheaper.

Money is any market good that can be used as a unit of exchange and a store of value. In the past it was common for several of them to circulate at once, from metals like gold to spices or grain. Yet most people today are bewildered by the idea of holding their savings in anything other than a bank account. Our society conceives of money as the official currency of the state, and very few people ask whether it is right for the state to decide which means of exchange is allowed and which is not.

The wealthy do not keep their savings in a checking account. They understand the system: they hold property, gold, silver or equities, and they borrow against them in government currency, knowing the debt gets cheaper against their assets. The Federal Reserve's Distributional Financial Accounts put a number on it: the richest tenth of American households keep 8.5% of their financial assets in deposits. The bottom half keep 23.3%, 2.7 times as much.

Gold has not only kept up with the devaluation of the currency, it has greatly outperformed it. Its price does not carry the inflation already recorded but the inflation expected for the long term, and that expectation grows along with the debt: the federal government owed 23.17 trillion dollars in January 2020 and 39.77 trillion at the end of July 2026, a rise of 71.6% against consumer prices of 29.4%. A debt growing at more than twice the rate of prices is not paid off out of a surplus. It is paid by issuing the currency it is denominated in, or by devaluing it some other way, and whoever buys gold is pricing that in. The market says the same thing more quietly: the ten-year breakeven inflation rate went from 1.65% in January 2020 to 2.28% in July 2026. Gold's demand is monetary, not industrial: technology and industry accounted for 6.5% of total demand in 2025.

Expectations have always worked this way: people save in the currency expected to hold its purchasing power and let go of the one expected to lose it. With grain as a means of payment, the mere expectation of an exceptional harvest is enough to devalue it before it is even gathered.

Gold averaged almost 131 dollars a gram in July 2026, almost 19% below its record month of 161.4 in February 2026. Even at that distance, whoever put their savings into gold in 2020 buys 101.6% more than they did then. Whoever left them in dollars, 22.7% less.

The philosopher's stone: why the dollar is backed by nothing

The modern dollar, the euro and every other government currency are what is called fiat currency. Fiat is Latin for "let it be done", the word that opened medieval proclamations and commands. A fiat currency's use is mandated by law: its demand comes from legal imposition, not from market participants choosing it voluntarily. That is the difference between a market currency and a fiat currency.

And that is not a historical accident, it is the objective: that the state, or a supposedly independent central bank, should control monetary policy and be able to issue new currency to finance whatever suits it. The kings of old wished to obtain infinite gold through alchemy and the philosopher's stone, so they could finance their armies and increase their power.

In 1404, Henry IV of England outlawed alchemy. The recorded motive is monetary: whoever managed to make gold could mint their own coins and compete with the king's. Four decades later, Henry VI was handing out licences for alchemy, going around his own grandfather's law, so that alchemists would help him pay for his wars.

There is the whole pattern, almost four centuries before the dollar. Making money out of nothing was never entirely forbidden. It was reserved for the state alone.

China had solved it earlier, and by the direct route. Kublai Khan put paper money into circulation across the whole empire in the 13th century, and Marco Polo, who saw it working, wrote that nobody dared refuse it on pain of death. It held for some seventy years. When Mongol power collapsed with the rebellions of the 1340s, the currency collapsed with it. The first Ming emperor repeated the move in 1368: he once again declared paper the only legal currency and demonetised even the bronze he himself had minted. He issued without restraint again, and it sank again. By the early 15th century Chinese paper money was dead, replaced by silver.

Europe's kings never found the philosopher's stone. Their heirs found a better substitute. It is called a central bank, and it does not manufacture gold, it manufactures fiat currency. Wars are financed with it and banks are rescued with it.

Now, if you manufacture a paper unit of account that represents no real good, how do you get anyone to choose your currency when they could save in gold, or in any other market good, which is what humanity has done throughout its history?

You do not give them the choice. You force them. Just like Kublai Khan.

Using the currency is not a preference, it is a legal obligation. In the United States it is set by 31 U.S.C. §5103:

> "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts."

By law taxes and public charges must be settled in dollars, and any debt can be. American gold coin is legal tender too: the Mint still strikes a fifty dollar gold coin of one troy ounce. At July 2026 prices the gold in it is worth about 4,070 dollars, and the law lets you settle fifty dollars of debt with it. Nobody will. The price control does the work a ban would do: the coin stays legal and using it stops making sense.

That artificial demand, created by legal imposition, is what holds up the currency's market price. Without it, a dollar would not be worth more than the paper it is printed on.

And with demand guaranteed, whoever controls issuance can take real wealth from everyone else without touching a tax. New dollars do not appear in every account at once: whoever creates them spends them first, while prices are still the old ones. Once in circulation, the dollar loses market price and, as a consequence, all other prices rise. What the first spender bought ends up being paid for by everyone who held savings in that currency, which is a form of taxation that nobody had to approve in Congress.

It is the perfect scam: I create a unit of account, I force people to use it, and then I print as much of it as I desire to pay my expenses, thereby stealing the savings of all the users of my currency through devaluation.

Who gets the new dollars first

First in line is the government. Between February 2020 and December 2021 the Federal Reserve bought public debt on a large scale, taking its Treasury holdings from 2.45 to 5.63 trillion dollars, and by the end of 2021 it held 19.0% of all federal public debt on its balance sheet. A government that finances itself by buying its own debt does not need to convince a single saver, nor pay the rate that buyers of debt would ask.

Second is the banking system. In March 2020 the Federal Reserve removed the reserves banks had to hold against deposits altogether, and cut the rate at which it lends to them to 0.25%. A bank no longer had to keep anything back: if its depositors came for their money all at once, it could borrow the reserves to pay them from the Fed. For the next two years it could borrow at 0.25% and lend to its best customers at 3.25%.

The printing press matters less than it seems: most new dollars are not created by the central bank, they are created by commercial banks when they grant a loan. When a bank lends to you, it writes the amount into your account, and with that entry dollars are born that did not exist before. The loan creates the deposit, and not the other way around. The Bank of England explains it in its own bulletin, where it also refutes the idea that banks merely lend out the money savers leave with them.

Last in line is you. Your wage is adjusted after the fact, looking at inflation that has already happened. Between the third quarter of 2021 and the third quarter of 2022 the average American hourly wage lost 2.8% of its purchasing power, and did not get back to its level until the end of 2024. By the middle of 2026 it had slipped below it again.

And new dollars do not come in through the supermarket, they come in through the financial system, so they reach assets before they reach the weekly shop. Between January 2020 and July 2026 consumer prices rose 29.4% and house prices 58.8%. That wage buys 16.6% less housing today than it did at the start of 2020.

Whoever gets paid first buys at today's prices. Whoever gets paid last buys at tomorrow's.

According to the framework on which the compulsory core of an economics degree is built, Keynesian at its root, this is the mechanism working as intended: the central bank buys debt, the state finances itself cheaply and spends, and that spending supposedly drives the economy. The argument takes for granted that more public spending means more wealth. But in reality you can see that it does not: financing a war is public spending, it adds to GDP by accounting definition, and it puts bread on nobody's table.

And it is not a side effect nobody wanted. The Federal Reserve's stated goal is not that the dollar should keep its value, but that it should lose it at a rate of 2% a year, which is the rate it considers most consistent with its statutory mandate. It measures that on personal consumption expenditures, not on the consumer price index used above.

Someone has to be the first to spend the newly created dollars, and it is not going to be you.

Debasement is a recurring practice in history

In medieval Europe several kinds of money circulated at once: gold, silver, copper, grain, cattle, cloth. And the same thing always happened: people paid with the worst and kept the best. Gold and silver were hoarded, and only came out of the chest for an emergency or for a purchase so large that the seller would accept nothing else. For everyday purchases people used grain, copper or other lower-quality means of exchange.

At the time it was common sense: what you save in and what you pay with are two different things, and there is no reason for them to be the same. Gold to keep, copper to spend. The investor does exactly the same today: saves in gold, equities or bitcoin and pays in dollars. Yet many people see it as an eccentricity. Not because it is difficult, but because when there is only one currency and its use is compulsory, the distinction disappears: nobody wonders whether there is something better to save in if they have never seen anything else.

It is common in history for a state to debase its currency for its own benefit and at the expense of its citizens. A clear example is the Castilian vellón, the most common coin of the time for everyday purchases, made of copper with a small amount of silver: 1.38%, already cut to 0.35% in 1597. On 13 June 1602, Philip III ordered that the new coin carry no silver at all and be struck with half the weight in copper. By law, the new coin was worth the same as the old one; in reality, with half the copper and no silver, it was worth less than half. People were not fooled: they kept the old coins and spent the new ones. Nobody was going to hand over twice the metal for the same price just because a law said so.

On 18 September 1603 all old coin was ordered to be surrendered within thirty days, after which it would no longer be legally accepted. At the mint it was stamped with a seal declaring that each old piece was now worth twice a new one, and for every two coins handed in you got one stamped coin back. Under the pretext of equalising the value of the old coin and the new, the Crown kept half of people's coins. According to the Bank of Spain itself, the operation was carried out taking advantage of "their greater popular esteem". The seal was not what made the old vellón worth double: it had been worth that from the start, for the metal it carried, and the restamping merely recognised it by law. Recognising it did not justify keeping half the coins. Before paper money existed, the state was already financing itself by robbing savers.

A government can decree by law that its currency is worth twice as much, but that does not change reality, in the same way that banning gravity would not make us all levitate by magic. A price is information about how much of a thing there is and how much of it is needed, and no law changes that. What happened in Castile was the predictable outcome: silver began trading in the market above its legal value, and prices rose. But they rose measured in vellón. Measured in silver, they did not.

Six years later, the Jesuit Juan de Mariana published De monetae mutatione, arguing that altering the value of the currency is a hidden tax the king collects without summoning the Cortes and without asking anyone's permission. The book ended up on the Index of prohibited books, Mariana was prosecuted for attacking the king, and he spent months imprisoned in a cell of the convent of San Francisco in Madrid. Philip III wrote to his ambassador in Rome to buy up and collect every copy "with great discretion and without letting the purpose be known", and have them burned.

Gresham's law: why you pay with the worst

This effect we have just explained has had a name since the 19th century, and it is usually summed up as bad money driving out good.

Thomas Gresham did not discover it. Copernicus had already explained it in Monetae cudendae ratio, the treatise on coinage he completed in 1526 while advising the Prussian Diet. And the oldest observation that survives is far older still: it is in Aristophanes' The Frogs, from 405 BC. The Athenians had been at war for a quarter of a century and had begun minting in bronze. The chorus laments that the old coins, the best struck and current among Greeks and foreigners alike, are put to no use at all, while the newly minted, base bronze circulates.

This is not a natural economic law, it is a consequence of price control. It is what we have just seen in Castile. Nobody kept the good coin out of whim or greed: they kept it because a law had decided it was worth the same as another with half the metal. Murray Rothbard explained it in What Has Government Done to Our Money?: it is not that bad money drives out good, but that money artificially overvalued by law drives out money with real value. Because nobody with any sense hands over something for less than it is worth just because a law says so.

And that is exactly what legal tender does: fix by law what you are obliged to accept, and at what rate.

If you hold gold or bitcoin and pay with dollars, it is not that you are cleverer than your neighbour. It is the predictable response of anyone who can choose what to keep and what to hand over, when the law tells them what they are obliged to pay with.

The mechanism also works in reverse, and that is documented too.

When the bad money degrades so far that the law can no longer hold it up, the opposite happens: people reject the bad and return to the good. Zimbabwe is the most recent and cleanest case. In mid-November 2008 its hyperinflation reached 79.6 billion percent a month and prices doubled every 24.7 hours. Zimbabweans stopped using their own currency without anyone ordering them to, and started paying in US dollars, South African rand and Botswanan pula. In 2009 the government was forced to dollarise officially. The hyperinflation stopped dead.

The order matters: first people stopped obeying, then the law changed. In Castile it was exactly the other way round.

This is known as Thiers' law, after the French politician and historian Adolphe Thiers. The economist Peter Bernholz documented it in hyperinflations all over the world in Monetary Regimes and Inflation (2003).

When the law compels the use of poor-quality money, the good money is hoarded. When the government currency is already so bad that nobody is willing to accept it, the good money becomes the only option.

What to do with your savings

This is what happened to a thousand dollars over the last ten years, from July 2016 to July 2026, depending on where it was kept. Inflation over that period was 38.8%.

The thousand dollars in the account are still there, but their purchasing power is 27.9% lower. The same thousand dollars put into real assets more than doubled their purchasing power over the same period.

These are ten specific years and not a promise: none of those assets rises in a straight line, and all of them have had bad years along the way. What is structural is the first row, because it does not depend on any market but on inflation, and inflation does not take years off.

None of these three options requires getting the timing right or knowing about markets. They require consistency: an amount saved every month, invested in goods whose supply does not depend on a government decision, sustained for years. Compound interest does the heavy lifting, and time stops playing against you.

Understanding this is not the hard part. The hard part is starting, and above all knowing in what proportion and on what criteria, because not every real asset serves the same purpose or suits everyone. If you are looking for a concrete route, you have it step by step in our guide to start investing from scratch.

At Catallaxis Capital we can help you. The first call is free and we explain what the service involves. From there we work through your situation and how to start investing in real assets. You can book it at catallaxis.com.

Strictly educational content. It does not constitute regulated financial advice.