The current economic recession has forced many Americans to think long and hard about things they may have never had to worry about before.  Financial security, employment, government assistance packages, these are all things that the average American is now familiar with and concerned about, and rightfully so.  With an economic decline and a new financial landscape come the opportunity for both massive gains and huge losses, but one of the biggest potential hazards that may come from the economic recession is a currency crisis.  The word crisis paints a panicked, desperate, and often times very severe picture in many people’s heads, but it’s hard to call something that has the potential to devalue the Dollar by as much as 40% or 50% anything but a crisis.  A currency crisis affects everything, not just the basics like food, water, energy, and other bare necessities.  Wages are no longer able to keep up with the falling Dollar, and people could be forced to take even more drastic financial measures to shore up their losses and struggle to make ends meet.

The reason behind the potential crisis is simple: monetary policy.  The act of printing billions and billions of Dollars creates a large monetary surplus in the economy.  The Treasury printing presses have been running at high capacity since the first government bailout occurred in late 2008.  Whenever the money supply increases, and the right economic conditions exist, inflation is bound to follow.  It is a fact that banks are unwilling to lend out very much money right now, even to the most qualified of consumers and businesses, but the Fed may have to raise interest rates very soon, in order to prevent hyper inflation of the money supply when the banks begin to lend again.  This raise in interest rates will likely free up money to be lent, and if the American consumer or small business is desperate enough, they will certainly begin snapping up loans.  There is already enough money being printed to potentially create an inflationary crisis, not to mention the money that will be printed in 2010 or following another stimulus package.  The picture is certainly a dreary one, but there are some really great ways to beat the inflation monster that is beginning to wake up from its long slumber.

All commodities and assets are vulnerable to market bubbles.  The internet boom and bust of the late 20^th century and the housing market bubble that burst in 2008 are both great examples.  But during an inflationary period, when money is printed at faster and faster rates and is devalued more and more each day, a flight to hard assets occurs.  Those who are heavily invested in gold, silver, other precious metals, and even oil could reap the biggest benefits.  At least they will have protected their wealth relative to the value of the US Dollar.  As the Dollar falls, gold has the potential to rise for two reasons.  For one, the price of gold is denominated in US Dollars, as is oil.  A fall in the Dollar directly affects its relationship with gold.  Secondly, as the Dollar gets weaker and weaker, it will take more and more Federal Reserve Notes to purchase the same amount of gold, thus driving the price up, and preserving the value of gold relative to the Dollar and other currencies.  Trading gold in for Dollars during in the middle of an inflationary period defeats the purpose of protecting one’s wealth with gold, but holding on until the crisis runs its cycle could put someone who preserved their savings with gold far ahead of those who did not.

The ideas behind gold as a hedge against or life preserver during inflation are simple.  The real question that needs to be answered is how many people are prepared for a potentially massive drop in the value of the Dollar, and what can be done right now to begin to protect people’s investments and savings against one of the most serious financial hazards lying ahead?  Gold has recently hit new highs, but currency inflation still remains a potential threat, and there’s still plenty of time for investors looking to safeguard their wealth to being accumulating gold.