It turns out Monetary Realism sets the topics for the mainstream to discuss. First the Trillion Dollar coin, now debasement.
“One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).
The problem is, nearly all of these arguments are wrong.
As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.”
We kicked off the no-Debasement discussion in the last post, pointing out Steve Waldman’s observation about how modest interest overcomes debasement from inflation.
Still, the times when Gold-buggery reached it’s max buggery-ness was during times when debasement was actually happening. During the last few years, the dollar has been losing value to inflation even after interest – and gold buggery has been off the charts. The same happened in the 1970’s, when the dollar was also being debased after interest payments.
You can see this clearly in the chart I posted last time, modified to make it clear gold bugs aren’t entirely crazy, but rather only partially crazy. People are actually losing money after interest today. Not much, but still losing money. Cash money also lost money after interest in the 1970’s, and briefly in the 1950’s.
And yes, this looks like something which could form the basis of a viable trading strategy. I will have to tell my kids about this trading strategy, because I’ll most likely be dead before we have another episode of cash being debased after interest.