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Pastimes : All Clowns Must Be Destroyed
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To: BGR who wrote (37612)6/2/2000 11:50:00 PM
From: patron_anejo_por_favor  Read Replies (2) of 42523
 
<<Why exactly should people try to flee paper assets during a deflation beats me completely, as by definition the purchasing power of paper money goes up during such a time! In fact, the dollar price of gold (another currency) should go down as the paper currency strengthens, just as other foreign currencies.>>

They flee paper assets at these times primarily because they no longer trust them. To GET to a period of sustained deflation usually means that people have endured the bursting of a financial bubble and/or a panic first. They've been burned by government and financial institutions en route to reaching this point. Moreover, there are often widespread societal upheavals associated with these periods (e.g. the rise of Fascism in Europe during the 1930's). Fiat currency might work out OK as a reservoir of value....but do you want to take that chance, given that you've:

a) Probably lost most of your assets, and don't have much left AND
b) May get uprooted physically by the economic/political turmoil you now reside in (i.e., to other countries).

Therefore wealth portability may play a role as well.

Understanding the role of gold in times of economic instability requires some out-of-the-box thinking for modern day Americans, most of whom believe "economic upheaval" means (at worst) gas at $2.50/gallon!
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