Maximus

Inflation: Demand Destruction and Wealth Erosion Trump Money Growth

Alan,

I admire your willingness to continue to express this view in spite of the bashing you repeatedly receive from the gold bugs.

I tend to think the Obama administration and the Fed will do what it takes to win the battle against deflation. Bernake got his PhD in the subject and plans to drop money from a helicopter. It will be hard for them to overcome the deflationary forces you cite, but they will win.

I think what we are seeing now is simply gold as a leading indicator of our inflationary future.

Let's say you are right: inflation does not materialize and deflation persists for some time (say several years), then perhaps gold may decline.

The problem is that the run up is beginning to occur now. The danger of your position is that if you do not have some allocation to gold, you may get wiped out. The ride up may well occur now and you would be left out before the inflation actually kicks in.

You make some great points about the difficulty of overcoming deflation, and I agree wholeheartedly, but there is a greater risk of not getting on a train as it is leaving the station.

I would rather risk losing 30% if gold falls on deflationary concerns than 90% on my cash and T-bills in a hyperinflationary scenario.