teevee,
Deflating currencies are not a "pay cut", as each dollar paid following the deflation is worth more than the preceding dollar received. This is the opposite of inflating currencies, where each dollar earned is worth less -- its purchasing power diminished.
Recently, we have been experiencing disinflation, which is decreasing, though still positive inflation. Throughout this relatively benign period the dollar's purchasing power has been increasing. This is the pain the third world is suffering, as every loan borrowed in dollars becomes ever more difficult to service.
For gold, in dollar terms, the issue comes to the foreground when disinflation begins to turn to deflation -- negative inflation. Then all lenders and borrowers will begin to experience the Asian Effect -- lenders due to massive corporate and personal defaults, borrowers because debt service becomes more expensive. This process then feeds upon itself, resulting in economic contraction and layoffs, turning into something of a self-reinforcing maelstrom.
In a free market, gold rises due to lack of faith in the financial system, as bank after bank falters. The Fed will probably inflate the US dollar long before this occurs -- if we're lucky. Their stimulative actions, bank-bailouts, plus increased social spending will aid in cheapening the dollar, and, in a free market, gold will rise.
Either way... |
