The later one is in the long-term debt cycle—i.e., a) when the amounts of debt and money are impossibly large for
them to be turned into real value for the amounts of goods and services they are claims on, b) when the levels of
real interest rates that are low enough to save debtors from bankruptcy are below the levels that are required for
creditors to hold the debt as a viable storehold of wealth, and c) when the normal central bank levers of allocating
capital via interest rate changes (MP1) and/or printing money and buying high-quality debt (MP2) don’t work so
that monetary policy becomes a facilitator of the political system that allocates resources in an uneconomic way—
the greater the likelihood that there will be a breakdown in the currency and monetary system. So, there are a)
systemically beneficial devaluations (though they are always costly to the holders of money and debt) and b)
systemically destructive ones that damage the credit/capital allocation system but are required to wipe out the debt
in order to create a new monetary order. It’s important to be able to tell the difference. In this study we will explore
both types.
To do that I will show you the value of currencies in relation to both gold and consumer price index
weighted baskets of goods and services because gold has been the timeless and universal alternative
currency and because money is meant to buy goods and services so its buying power is of paramount
importance. I will also touch on their value in relation to other currencies/debt and in relation to stocks
because they too can be storeholds of wealth. The pictures that all these measures convey are broadly similar in
big currency devaluations because the currency moves are so significant that they change in relation to most
things. Because many other things (real estate, art, etc.) are also alternative storeholds of wealth, we could go on
and on describing how they perform in big currency devaluations but I chose not to because that would take this
past the point of diminishing returns.

In Relation to Gold
The chart below shows spot currency returns of the three major reserve currencies in relation to gold since
1600. While we will examine these in depth in this study, for now I would like to focus your attention on both
the spot currency returns and the total returns of holding interest-earning cash in all the major currencies since
1850.
As shown in the next two charts, devaluations typically occur as relatively abrupt declines during debt crises
that are separated by periods of currency stability during periods of prosperity. I noted six such ones, which
we will soon delve into. Of course there were many more devaluations of more minor currencies that we won’t get
into right now.
Here are some notable takeaways:
Big devaluations have tended to be more episodic than evolutionary. There were six time frames that there
were really big devaluations of major currencies (though plenty more of minor currencies) over the last 170
years.