The Endgame of Excess: Trading Fiat Money Fatigue

As seen repeatedly – from Rome to Weimar to the British Pound in 1967 – the erosion of money’s value and trust often precedes, and catalyzes, declines in global leadership.

Today’s environment, in ways, mirrors the late 1960s to early 1970s: fiscal dominance (fiscal policy the main driver of economic outcomes over monetary policy), monetary accommodation, and external challengers rising in confidence.

This is “another one of those” moments where the paradigm of money itself is up for renegotiation – with capital flight, real asset repricing, and reserve status doubt emerging.

We briefly look at the mechanics of this and how to position portfolios to best adapt to it.

Key Takeaways – The Endgame of Excess: Trading Fiat Money Fatigue

• Fiat trust is eroding, slowly but structurally.
  • Debt monetization and negative real rates can silently burn savers without a dramatic crash. For fixed-rate assets, be sure the nominal yield compensates for inflation, taxes, and all fees/expenses. If FX, consider currency risk.
• Real assets can help offset poor real returns in nominal paper claims.
  • Own gold, productive real estate, commodities – not just sovereign bonds or cash.
• Gold is quietly regaining monetary relevance.
  • It’s re-emerging as the reserve asset of distrust, with crypto as a volatile but potential alternative.
• Emerging markets with real resources will diverge.
  • Favor EMs with surpluses (e.g., Singapore, Gulf States), avoid those with USD debt burdens.
• Careful with longer-duration.
  • Shorten fixed-income exposures.
  • Long-dated sovereign bonds offer fake safety.
• Prepare for erosion, not explosion.
  • Stealth debasement, not sudden collapse, will drain unhedged portfolios.

The Gradual Fall of Fiat Credibility — and Why It’s Not Priced

The most structurally underpriced risk in global markets today is the slow erosion of fiat trust.

While debt dynamics have long been the main driving force of economic cycles, it’s the combination of over-indebtedness and waning belief in fiat money that defines the most dangerous phase of the cycle.

From the United States to Japan and Europe, debt levels have reached thresholds where servicing them via honest growth or austerity is no longer politically feasible.

These countries are all following the fiat template: expanding debt, monetizing deficits, suppressing real rates — and gradually devaluing their currencies against real assets, rather than breaking the peg in one dramatic move as in hard money regimes​.

For instance, Japan saw holders of its bonds lose 60% against gold from 2013-2025, yet the process unfolded without drama — not because fundamentals were sound, but because the yen’s fiat nature enabled a slow-burning erosion​.

This same “stealth default” mechanism is now playing out across Western economies.

The US fits the archetype perfectly:

• Debt-to-GDP at ~122%, projected to rise to 130%+ in the next decade​
• Low reserve buffers (FX reserves at 3% of GDP)
• High dependence on external financing (29% of debt held abroad)
• Yet, its status as the global reserve currency insulates it – for now.

Reserve status is the last, fragile pillar keeping the US structurally solvent.

But this status is being eroded by:

1. Weaponization of the dollar (e.g., financial sanctions)
2. Diminishing foreign appetite for Treasuries (particularly from BRICS+ nations)
3. The rise of alternative systems (CBDCs, yuan-settled oil trade)

The shift is not sudden — it’s incremental, slow, and often invisible in day-to-day price action.

But structurally, it’s fatal.

The trust required to hold fiat obligations is being consumed by negative real yields, political dysfunction, and geopolitical weaponization.

In fiat regimes, once faith declines, there is no anchor.

The history is clear: debt monetization becomes default by another name.

The lesson from the 1970s: monetary system transitions don’t happen all at once – but when they do, it’s already too late to hedge.

Note that of the currencies that have existed in 1850, 80% of them no longer exist. The rest have been severely depreciated.

Asset-Class Implications

This environment favors resilience over reach. Optionality over optimization.

1. Real Assets > Nominal Fixed-Rate Assets

Commodities, infrastructure, farmland, and gold become critical hedges as fiat erosion continues.

Fiat cash and fixed-income claims are structurally disadvantaged.

2. Gold and Real Stores of Value > Sovereign Bonds

Gold is regaining its monetary role semi-quietly.

Bitcoin and the most reliable cryptocurrencies, while more volatile and not widely institutionally accepted, increasingly reflects sovereign mistrust.

Both assets offer “outside the system” refuge – the ultimate insurance against monetary disorder.

3. EM Credit Divergence

Emerging markets with real resource bases and sound balance sheets (e.g., Gulf States, Singapore) could outperform developed-market sovereigns where debt monetization is now policy.

However, EMs with external debt in hard currency remain vulnerable if the dollar’s decline becomes disorderly.

4. Short Long Duration

Avoid long-dated sovereign bonds, particularly in fiat-heavy economies.

The yield is illusory – real returns are negative, and duration risk is structurally mispriced.

5. Underweight Passive USD Exposure

US equities remain globally dominant but are increasingly priced for a paradigm that assumes stability in money, rates, and geopolitics.

Shift toward active strategies, hedged currency exposures, and non-US alternatives.

What if the next “crisis” is not a crash, but a slow erosion?

Some of the most talked about historical financial events are sudden dislocations — crashes, defaults, currency pegs breaking.

But the main outcome may be that nothing breaks dramatically.

Instead, wealth silently evaporates through negative real returns, stealth taxation, and currency debasement.

Trader and Investor Playbook

If we accept that true structural reform is politically unlikely and that the base case leans toward eventual financial disruption, then as traders, investors, and capital allocators, the task becomes building strategic resilience, not picking tactical winners.

Here’s a framework:

1) High-Quality Equities and Businesses

Focus on companies with:

• Strong, stable profit margins (pricing power in inflationary or volatile environments)
• Clean balance sheets (low leverage = survival in credit crunches)
• Global revenue exposure (hedges against US fiscal-specific risk)
• Essential products or services (pricing inelasticity)

Think of businesses like high-return consumer staples, mission-critical software, or some energy infrastructure plays.

Key: Don’t overweight firms that rely on cheap debt or endless consumer credit.

2) Real Assets and Stores of Value

Focus:

• Gold – classic hedge against monetary debasement; no credit risk (i.e., nobody else’s liability)
• Productive real estate – particularly cash-flowing assets with pricing power (agriculture, industrial, energy transition assets)
• Commodities exposure – selected carefully (e.g., oil is growth- and demand-sensitive); real assets that benefit if fiat currencies erode

Avoid assets with high carrying costs relative to their inflation protection unless they provide real yield.

3) Geographic Diversification

Focus:

• Countries earlier or later in the debt cycle, preferably with:
  • Low sovereign debt loads
  • Strong external accounts (current account surpluses)
  • Independent monetary policy (ability to self-stabilize)
• Examples might include certain Southeast Asian economies, parts of Scandinavia, and (selectively) commodity-linked economies that manage their fiscal balance well.

Key: Focus on governance strength and external buffers.

4) Shorter Duration Fixed Income or Floating Rate Instruments

Focus:

• TIPS (inflation-linked bonds) in moderate doses
• Floating-rate bonds where real rates adjust upward with inflation
• Very high-grade short-term sovereigns or corporates to preserve optionality and “dry powder”

Avoid long-duration bonds in heavily indebted countries unless you are very confident in financial repression (interest rates held below inflation) continuing and rates staying artificially low.

5) Optionality and Crisis-Responsive Strategies

Focus:

• Cash – not as a yield or long-term hold, but as strategic optionality (buy distressed assets later)
• Tail risk hedges – limited outlay option strategies for major downside events
• Exposure to volatility – owning vol or strategies that benefit from higher systemic volatility, which typically rises into debt crises
  

Meta-principle

Diversify across risks, not just assets.

You want a portfolio that can weather inflationary scenarios, deflationary busts, and currency declines, because a sovereign debt resolution can evolve chaotically through several of these states.

Final Thought

When trust erodes – in money, in institutions, in policy – scarcity and resilience assets outperform.

That’s why real cash flow, real assets, real governance become important.

You won’t time it perfectly – but you can be structurally prepared, minimizing the need to guess short-term political decisions.

Here’s how to turn that playbook into example allocations:

Example Strategic Allocation #1

Notes on Execution:

• High-Quality Equities – Stick to companies with clear free cash flow resilience across cycles. Don’t chase high-growth tech with leverage.
• Real Assets – Physical gold preferred over ETFs where possible; real estate must be productive, not just speculative.
• Emerging Markets – Not “BRICS” indiscriminately – carefully select those with disciplined fiscal/monetary policy.
• Fixed Income – Avoid locking into long-term bonds in high-debt countries. Assume real rates may stay negative.
• Cash – View cash not for high returns, but for optionality.
• Tail Hedges – Use small, defined-risk strategies. Don’t over-allocate to avoid the costly long-term drag.

Strategic Intent Behind This Mix:

• If inflation takes off → Gold, commodities, pricing-power equities hold up.
• If deflation/shock happens first → Cash, short bonds, and volatility exposure protect.
• If dollar weakens → Foreign equities and gold benefit.
• If debt resolution gets chaotic → Real assets and crisis hedges outperform.

Example Strategic Allocation #2 (Institutional)

Here, the goal is a core base portfolio, then overlays (derivatives, futures, structured options) to reach about 3:1 notional exposure while managing actual risk levels.

This mirrors how large institutions like hedge funds, pensions, and sophisticated family offices run “risk parity” or “overlay strategies” – i.e., controlled leverage, not simple cash beta.

(Managing your core unlevered base portfolio is important before going more advanced.)

Example Institutional 3:1 Structure

Core (Unlevered Base Portfolio, 100% capital)

This totals 100% of your unlevered core capital.

Think of it as a resilient, inflation-aware, crisis-tolerant base.

Overlays (Adding ~2x additional notional exposure on top)

Note that these need to be structured well to avoid paying futures carry (i.e., contango = negative roll yield).

Summary Exposure

• Core Assets = 1.0x
• Overlay Exposures = ~2.0x
• Total Notional Exposure = ~3.0x
  

Important:

Risk is balanced across asset classes – not purely equity beta – so risk-weighted exposure is much more conservative than a simple 3x stock portfolio.

Margin requirements for futures/options are low (~5-10%), so cash and liquid bonds cover margin comfortably.

Strategic Why

• Equity Beta – Growth upside participation.
• Real Assets – Inflation/monetary regime insurance.
• Fixed Income – Defensive ballast.
• Cash – Margin buffer and firepower for distress moments.
• Overlays – Magnify exposures that are underrepresented in simple unlevered portfolios (especially commodities, global equities, rates plays).
• Volatility/Tail – Cheap insurance that could massively pay off in disorder.

Key Risks to Manage Carefully

• Funding Liquidity – Ensure margin/collateral is stress-tested against fast drawdowns.
• Cross-Asset Correlations – In true crises, correlations go to 1 – size tail hedges accordingly.
• Counterparty Risk – Prefer centrally cleared instruments when possible.
• Rebalancing – Overlay weights must be actively managed based on volatility shifts.