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Be Skeptical of Austrian Economists' Warnings of Dollar Doom

The Peoples Bank of China said last year it will stop adding to foreign currency reserves and let the yuan appreciate.

Thomas Sargent, who won the 2011 Nobel Prize in Economics for his macroeconomic theories, and who currently teaches in Korea, even made headlines last week by predicting that the era of the dollar's use as the global trade currency could be coming to an end.

Figures from the Bank of International Settlements also indicate a growing portion of international debt is held in currencies other than the dollar, especially the euro.

The Austrians celebrated monetarism as "conservative" in the 1960s, when "Chicago School" leader Milton Friedman used it to argue for tightening the money supply. Now, with outgoing Federal Reserve chairman Ben Bernanke having used the same theory against the "Great Recession," the policy is derided as "liberal."

Austrians believe that "the taper," the removal of Quantitative Easing (QE) due to start this year, will trigger the collapse.

Other noted advocates of Austrian theory, such as Paul Craig Roberts and Peter Schiff, feel the same way. Most suggest investors buy gold, which currently sells for a bit less than $1,250 an ounce.

Could they be right? Part of the problem lies in the apocalyptic way the Austrians' warnings are expressed, and the fact that they haven't come true, time after time after time. That doesn't mean they can't be right this time; it's just not the way most traders want to bet.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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