I don't know why you're so focused on gas, which is an inherently volatile commodity controlled by a cartel that the United States has very little leverage over. Sure, they need us as consumers, but as China, India, and other countries industrialize more, OPEC will be in a stronger position to control supply and push prices upward. Frankly, I'd be shocked if gas weren't $7 in ten years, even if the Fed pursued deflationary/contractionary policy. Of course, tighter money and reduced government spending would have many other pernicious effects on our economy that would likely feed back negatively into the consumer demand for gasoline, but for simplicity let's leave those out of the equation for now.

The point is, you've set up a false choice. Do I think there's a hydro-fracking-sized disruption coming to gold mining in the next ten years? No, I do not. But I also do not think that any United States policy intervention would forestall the likelihood of $7 gas in 2023, so using it as your alternate scenario doesn't in any way support the idea that we should tighten monetary policy. We already have energy companies destroying the environment trying to pursue new oil supplies to feed the world market, all the while getting generous subsidies from the taxpayer. The idea that any movements in the direction of tighter money or commodity-backed currency would keep gas under $7 ten years from now is extremely implausible, even if you ignore the disastrous effects of shrinking safety net programs at a time when jobs are scarce.



Actually, the real "intrinsic value" of the dollar is the value that the bearer places on not being fined or imprisoned for violating legal tender laws. I would argue that this probably exceeds the face value of just about every denomination of bank note printed. It may not be compatiable with a Libertarian's view of the world, but that doesn't make it any less real to the person holding currency than the value of some shiny golden coin.




Omitted: actual evidence.

Look, of course the powerful and well-connected generally do fine when the shit encounters the fan, and yes, the criminals and oligarchs are people, but they knew what they were getting into by shoveling their money into a small country with a virtually unregulated banking sector. They did it to avoid taxes, so for them it was worth the risk of the country's economy imploding, which it eventually did.

Furthermore, the Cypriots themselves enjoyed the spoils of all of that foreign money that came in seeking low taxes and low regulation. Did the small depositor who owns a coffee shop on Cyprus know it was all about to blow up? Probably not -- surely there are a lot of innocent victims in the collapse of Cyrpus' economy.

But how do you get from there to a story about how people should have been sinking their personal wealth into gold, or gasoline, or some other tangible things? People don't do that under normal circumstances, because it's inefficient, and because commodities themselves change in value, often in a more volatile fashion than currencies do, because commodities are by their nature much more specialized than bank notes. Currency has the beneficial effect of aggregating stored value across a wide variety of industries, products, services, so that an unanticipated event like a drought has a much more muted effect on the dollar than it does on the price of wheat or livestock.

In your effort to highlight the benefits of investing in tangible commodities with more intrinsic value than fiat currency, you're completely ignoring the downside risks and drawbacks of having your wealth stored in those commodities that money was designed to mitigate. Liquidity turns out to be a very nice thing! People who have their retirement accounts in dollars do have to worry about inflation, and how the U.S. economy is doing as a whole, but they don't have to worry as much about oil supplies or the exponential growth in gold mining over the past 40 years, or the many hundreds of other things they could be putting their money in that can experience booms and busts that make Cyprus 2013 or The United States 2007 look tame by comparison. Think of the currency as sort of a "mutual fund" that consists of every single activity that contributes to the United States GDP. You can't get any more diversified than that.



Well, if you had asked me that question in 2000 (when gold was trading around $300/ounce) I would have told you that, had you bought your gold in 1980 (when gold was trading at $800/ounce), you'd have eaten about a 60% loss:



Yes, if you held on until now, you'd be very happy, but who has the balls or financial flexibility to weather that kind of loss without jumping ship unless it's just gambling money they're willing to walk away from?



I can't remember if it was you or someone else who invoked this argument a while back, but my response now is the same it was then, which is that everyone in America who has money to invest should be held responsible for knowing that the Fed has, for a long time, targeted a small but non-zero rate of inflation, and that sometimes it goes higher, and sometimes it goes lower. Any retirement planner will tell you this. Anyone who does the math when they're in their early 20s for how much to stash away in their 401k and doesn't bother to account for the Fed's well-known preference for low but positive inflation deserves what they get, quite honestly.

Hell, people used to get defined-benefit pensions in this country until Reagan shoved 401ks down our throats, and now the same free marketeers want to try to say that it's inflation that's eating their nest egg and not the fact that people are steered toward investing in the Great Wall Street Casino? Give me a break.



I enjoyed Krugman's tongue-in-cheek rejoinder to this, which is that a subscription to Shadowstats cost $175 six years ago, and today it costs... $175, or an annual inflation rate of 0.00%.

But, in all seriousness, shadowstats.com does not come close to passing the smell test, and it has nothing to do with its proprietor being a "goldbug." I did not mean to offend by using that term, and will stop using it if you see it as derogatory.

For an illustration of how absurd the shadowstats numbers are, see here. The Cliff's Notes version is that shadowstats's inflation calculator uses an annualized inflation rate of about 8.1% between 1990 and 2010, meaning that things bought in 2010 would have cost almost 5-fold what they cost in 1990.

You and I were both alive in 1990. As the linked post asks, can you even think of one item that now costs five times what it did in 1990? OK, gold. Can you name a second? Nope, not gasoline -- it's about 3-fold higher. Food? Nope, not even close. And not any of the other examples cited in that post:



I've heard this talk that he's using the BLS' own 1980 method of calculating CPI, and I haven't spent any time scrutinizing that claim, but if he is, then the people at BLS in 1980 were total dunces, because shadowstats' numbers are so very far off from observed reality. It's entirely possible that he is using their methods, and if so, their methods were terrible.



Well, the stock market indexes aren't inflation-adjusted, so the Dow's "record high" isn't any sort of record at all in real terms. I don't think anyone who pays attention is deluded into thinking our economy is healthy, but that doesn't mean there's any level of inflation that our country hasn't been able to deal with before. The hard money folks have done a piss-poor job of proving the case that inflation got us into this mess, so there's no wonder that nobody believes them when they tell us how to get out of it.



I could just as easily say the gold bubble is also ready to burst, with record prices brought on by panicked investors that will eventually sell as the global economic outlook improves. Gold fell to less than half its value between 1980 and 1990 -- why can't that happen again, especially with the exponential growth in mining production?

And, not for nothing, but it's simply inaccurate to try to tie Keynesianism to people who missed the housing bubble. Two of the most prominent Keynes-inspired economists who were way ahead of the bubble well before it burst were Paul Krugman and Nouriel Roubini, but there were many others, including Dean Baker, Joe Stiglitz, and Robert Shiller. I already cited Krugman's anticipation of the bubble on the BBS before, but I can dig up citations for the others if you'd like. Peter Schiff deserves credit for seeing it in 2005 (though he whiffed on many other predictions prior to that, and has whiffed on predicting inflation since), but you can't judge Keynesians by a different standard just because you don't like their reasoning.