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Economics 101 - The USD is a zero coupon IOU and should not to be used as an investment or as a long term store of value, period.

Gold has been on a good run the past 10 years.  Congratulations to those who had the guts to put their money on the line when the price was about $300 USD/oz  and had been stuck there for such a long time.  Whether or not gold continues upward to the inflation adjusted 1980 peak remains to be seen.  Chances are good that it will, the question is how soon and how far the newly established peak will overshoot this time around.  My guess: about $3000 to $4000.  Today, you can still find a decent five year old used car for $4000. 

Now onto those who have been continually bashing the USD and bemoaning its decrease in purchasing power since 1913 compared to gold, listen up. 

The Federal Reserve Note that you (briefly) keep in your wallet or place on deposit in your checking account is an IOU no different from a stripped Treasury bill or bond.  It is a zero coupon "bill".  It is the interest payment on a Treasury that has the actual value. 

It is sheer folly to expect a 2011 dollar to have the same purchasing power as a 1913 dollar.  At no time in the history of the world has there ever been "price stability".  Long term inflation is one of the penalties/costs of the capitalist system (and every other system that has existed since money was first used, for that matter).

One of the pillars of the capitalist system is compound interest.  It is pure magic in a vacuum.  For example, $1000 USD invested at 6% for 98 years would be worth $302,000 today if left untouched for that many years.  Even with today's "worthless" dollar, that's still a lot of money. 

Let's consider another example.  The price of gold in 1913 was roughly $19 USD at the end of the "true" gold standard.  If an equivalent amount of "money" was invested at 4.5% interest compound continuously for 98 years, that money would be worth $1400 today. 

So, you could argue that the interest adjusted value of the USD has not decreased at all since the Fed was established in 1913.  The zero coupon bill+interest would hold value just as good as gold.  The requirement, of course, is a stable government with a sound financial system.  The United States has met this requirement until now.  Will it continue to do so?  Ah therein lies the rub.  The United States is Britannia redux, right?  Just common sense.  Or is it? 

The United States government and its financial community is still highly influential and pertinent in the 21st century.  Maintaining that influence largely depends on  its leadership (I know.....DUH!). 

We, the people, must select the most able among us to lead and represent us.  That ability in my mind requires intelligence, which again most of those of whom we elect, possess. 

This is the true great debate is our time.  How many of our leaders/representatives possess the intelligence to face the challenges of an ever changing socio-economic system?  Is there too much personal and goverment debt?  Should the US return to a gold standard?  Is the Austrian school closer to THE answer than MMT?   

More to follow.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.