The dollar is going to lose value. We know that for sure, just as we know stocks will go up. What we don t know is how much value the dollar will lose and how soon, and whether it will gain briefly before it loses long term.

Scarce things become expensive and plentiful things become cheap. The dollar is valuable only because the U.S. government guarantees it can be used for things like paying debt and buying goods. The number of dollars America creates each year is limited only by policy makers desire for them. All things equal, most economists would prefer to create new dollars at a slightly faster rate than the economy s growth rate, resulting in a gradual but controlled loss of buying power, called inflation.

Economists like to keep a little inflation brewing for more or less the same reason a fisherman likes to keep a little slack in the line: so that a sharp downward yank won t break anything. The one thing a central banker doesn t want is deflation -- for prices to fall. That sounds like it might be desirable because life would become cheaper, but if we all believed prices were going to fall we d delay buying just about everything, putting more people out of jobs. As a nation, we d grow poorer even as we saved. (John Maynard Keynes, a prominent British economist who died in 1946, called that the Paradox of Thrift.) By maintaining a few percentage points of inflation each year, central bankers hope to keep a cushion so that if demand for goods suddenly shrinks, prices will only rise less quickly, or perhaps flatten, but not fall.

So we know the dollar will lose value, at least gradually over long time periods, because we make it so. The best way to protect against that is to own things that rise in value faster than the rate of inflation. Businesses are ideal for that job, since if they sell things people want, people will keep exchanging labor for those things, no matter what currency serves as a go-between for labor and goods, and no matter what it s worth. Shares of businesses protect investors from inflation. Savings accounts do not. Savings account holders are guaranteed not to lose dollars, but they can easily lose wealth. Because of the typically gradual nature of inflation, the risk is small over short time periods but grows larger over long ones.

There s a hot debate at the moment over whether inflation is about to spike. Those who say it will point out that the government is spending trillions of dollars it doesn t have to shore up banks, create jobs, boost lending and more. Much of it will be borrowed from other governments. It will have to be paid back, either through a dramatic reversal in the government s recent tendency to far overspend its revenues, or by the creation of new dollars, which would make existing ones less valuable. The Federal Reserve, which is empowered to create dollars, has so far this year bought or announced the purchase of $1.25 trillion in agency-backed mortgage securities ( agency meaning Fannie Mae and Freddie Mac), $200 billion in agency debt and, notably, $300 billion in long-term Treasurys. It can buy these things with a simple electronic credit and create money later to pay for them. Those who argue severe inflation is coming also say foreign governments who hold dollars -- China has an estimated two-thirds of its $2 trillion in currency reserves in dollars -- might lose confidence in its ability to hold value, and seek to put money elsewhere, thereby making the dollar even weaker.

Those who remain confident in the dollar say the threat of money being created is eclipsed by the drop in consumer demand and that deflation is the bigger risk. Inflation has recently fallen to zero. They say peer nations have it worse. Europe and Japan have aggressively borrowed, too, and Europe has more inflation. They say that the dollar still holds the bulk of the world s currency reserves, even a decade after the introduction of the now-16-nation euro, because of its unmatchable depth and liquidity, and that foreign dollar holders who threaten to dump them and drive the value lower do so at their own loss.

My guess -- and it is just a guess -- is that we ll leave this recession with inflation that is greater than what government economists would like but not nearly as great as doomsayers predict, and that the dollar will wobble against the euro and yen in the short term but not lose value to them in the long term. The thing to hold through all of it is stocks, and certainly not gold, which is called by many a good hedge against inflation but is in fact a poor one, for reasons I ll explain here in coming days. If you re uncertain about the near-term direction of the dollar, like me, own shares of companies that sell goods in many countries. I ve listed a few below that have strong balance sheets, modest price/earnings ratios and decent dividend yields.