Randy_H

The First (and Possibly Last) Euro Decade

The EUR is not a reserve currency. It may become one (though I rather doubt it), but it is not, by definition, a global reserve yet. Nor does the ECB enjoy anywhere near the seigniorage privileges of the Fed.

By the way: (a) all currencies are "fiat", even commodity backed currencies. Money is only money because you can reasonably expect everyone else to have confidence in it. From Antiquity forward, metal-backed currencies regularly lost confidence even when there existed ample reserves. (b) There was plenty of inflation under gold-based systems. In fact, the largest bubbles as a portion of the total economy occurred under gold-backed currencies of the Imperial era.

Do goldbugs actually study history, or just the cartoon version of the television version of the Cliffs notes of history?

First Comes Deflation, Then Comes Inflation

JasonC

Good comment, though much of your argument could be equally applied to a pretty rough patch of deflation -- longer lasted than 6 months.

First Comes Deflation, Then Comes Inflation

Bernanke says deflation is "not really possible" because that reflects his worst fears. I think what you're missing is the money supply destruction that occurs concordant with deflation. Right now deleveraging is destroying more money than all the worlds' horses and all the worlds' men can create.

You also are not properly considering the two variables you simply cannot accurately predict: (1) how deep the deflation is during the deflationary period; (2) how long the deflationary period lasts.

Those factors drastically affect the likelihood of inflation following a deflationary period. For example, if a cyclical deflation begins resembling anything like Japan's liquidity trap, then even very-high inflation in the following decade will still result in net deflation, not net inflation.

It is that which keeps Helicopter Ben up at night.