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U.S. Treasury Owned Gold: What Can It Buy?

westcoaster,

my wife says that i worry about everything--she is probably correct. sorry, couldn't resist a bit of levity.

anyway, deflation should theoretically increase or improve the future buying power of bonds, certificates of deposit, money market funds, etc. someone paying me back in future dollars would actually be returning me more buying power in the future than i give them today (that is, with enough deflation, one dollar will buy me a pack and a half of m&ms instead of one pack today--so they would pay me back in more goods and improve the value of my savings.) from what i can tell, the buying power of TIPs probably will hold constant or improve slightly as well. as long as one gets repaid, deflation clearly benefits most holders of debt. however, serious deflation probably also increases the risk of default by virtually all debt issuers. that clearly raises my concern about deflation in regard to government and corporate debt.

under deflation, however, the future buying power of an ounce of gold and/or a certain number of shares of an equity and/or a certain property may rise or fall from the current level under deflation. the issue would be whether the prices of gold, the common stock, or the property deflated more or less than the general price level. the price of gold should be a function of the demand and supply of it; concern over inflation may be unduly raising demand currently and hence, the price could drop much more sharply than the general price index if inflation fears subside. don't take this a forecast--but take it as an acknowledgment that you might very well be correct. i think that the same probably would be true of equities and real estate.

U.S. Treasury Owned Gold: What Can It Buy?

dave wrixon and westcoaster,
you are both correct that fiat money and credit are far more efficient than gold (or barter, silver, etc) to provide the transaction value of money.
however, money serves two purposes 1) to make transactions more efficient and 2) as a store of value (that is, to efficiently provide for saving or postponing current consumption to provide for current consumption. as a store of value, the recent explosion in the money supply creates considerable doubt about whether the currency will maintain anything close to the same purchasing power. if aggregate money supply doubles and all else stays the same (not always the case, but at least a sensible starting point for discussion), the value that money "stores" will be radically reduced. the so-called gold bugs assert (and i can't see any clear reason to doubt them on this) that gold will maintain some semblance of value. recently someone stated that an ounce of gold would approximately buy a man's suit in 1900 and still approximately buy's a man's suit in 2009. as a retiree, personally i am interested in maintaining or hopefully increasing the future buying power of my current wealth. how comfy should i feel that i can retain purchasing power in us government "fiat" money when bernanke seemingly is printing it 24 by 7 ??