« The Aftermath of the Great Recession, Part II | Main | More Like A Depression Every Day »

October 08, 2009


Monty Pelerin

What an outstanding contribution! Very well done. I have just posted it to my developing website as it pertains to many of the issues that I have been "piecemealing." Thanks for pulling it all together.


I don't get point #4 of the 7. If the dollar falls as predicted, then all the imported, dollar-traded commodities will be more expensive to the US, regardless of other market factors.

Isn't oil in particular so deeply insinuated into the economy that it alone will drive up the price of everything it touches?

Put another way, isn't the falling dollar an inflation machine?


If the US is holding 78,9 % of the official gold reserves, as reported in the figures of the official World Gold Council ( figures of March 2009), the US can manipulate the price of gold for many years to come.

With a gold price under control, the fall of the dollar will be under control.

Robert Happek

Regarding the long term decline of the purchasing power of the Dollar (1920-2009): It is a great fallacy to believe that the long term purchasing power of any currency must be constant over time. Such a currency would contradict the laws of thermodynamics.

Consider a Dollar issued in 1920. That Dollar most likely was earned for producing a good or service in 1920. If the good was a manufactured product (say a car), there is almost certainly nothing left of that good today. In other words, the present value of that good made in 1920 is zero. So why should the Dollar earned in 1920 for producing a good worth nothing today still have the purchasing power of one 1920 Dollar (more than ten 2009 Dollars)? The answer is of course, it can not and it should not.

So the only conclusion from the long term chart of the Dollar purchasing power over time is: the Dollar has fallen too slowly over time. The huge debt overhang in the economy is precisely a consequence of the fact that the monetary system tries to contradict the laws of thermodynamic. The Dollar can not and should not try to maintain a constant purchasing power over time. The purchasing power of the every fiat currency must decline over time in the same way the goods and services produced in the economy decline in value over time.

The silent desire behind every complaint about the loss of purchasing power of the Dollar is the desire to live a life without work. To do so, one needs to accumulate sufficiently many Dollars which maintain their purchasing power in time. That desire leads to a financial system which suffocates all other segments of the economy. The Dollar should decline over time. This loss of purchasing power would push holders of excess Dollars (savings) into lending these Dollars. The interest earned on lending these Dollars should only compensate for the loss of purchasing power. In other words, it would be impossible to gain purchasing power by lending. Lending would at most keep the purchasing power constant. A financial system build on this principle could lead to a sustainable economy.


Robert Happek your comment is absurd. An eroding purchasing power is because of the debasement (increasing money supply) of the US dollar..It is plain and simple counterfeiting and is a looting of wealth from savers to those who first receive the money. Money is a store of value and a medium of exchange, one shouldn't have to constantly need to "lend" it out and risk all the vagaries of lending it, in order to have to keep up with debasement...a stable store of value that maintains its value is what keeps the economy strong because savings can be accumulated for rainy days and investments, etc...If counterfeiting is so good for the economy, then we should allow everyone to counterfeit, why just the Fed? Also, your example doesn't hold because over time gold doesn't erode so it should maintain its value with a stable currency. but the huge run up in gold from $35 to now almost $1800 is proof of the massive counterfeiting that has been undergone....

monetary debasement is simply a hidden tax used by politicians to cleverly fund their spending without people realizing...

Your comments are just plainly absurd and maybe you should repeat them to a fixed income pensioner who has to cope with a constantly lower purchasing power, maybe he'll "understand" the importance of your ridiculous counterfeiting operation...

The comments to this entry are closed.