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I s'pose I have to be a devil's advocate and ask: what's the protection against hyperinflation since it has and does occur when shady governments find it convenient?

Gil,

Hyperinflation is highly improbable under the current system. But guarantees against both hyperinflation and deflationary collapse under any monetary system (either of which would cause an overthrow of the government) are impossible, because stability depends on effective management by whomever is in charge of that system.

My position is twofold:
(1) I trust our Fed Board of Governors to fight inflation that exceeds 2.5-3% by tightening (i.e., unprinting fiat dollars), in the event that the now-idle billions of fiat dollars just sitting there in banks' excess reserves gradually start "chasing" goods and services at a too-rapid pace. That means the word "hyperinflation" is off the table; it's just a scare-word. It also means that excess inflation, if and when it shows up, will be countered by the Fed.

(2) Conversely, in the alternative gold-standard scenario, I have zero trust in the gold miners of South Africa and Russia to cram already-mined gold back into the ground to prevent excess inflation in the USA, in the event of a surprise gold-supply glut resulting from a new discovery or a breakthrough in mining or processing technology. (Imagine what would happen to the price of goods -- in gold coins -- shortly after a new, inexpensive method to extract gold from seawater was posted on the internet. As in Weimar Germany, it would take wheelbarrows full of "money" just to buy a loaf of bread, but this time the "money" would be gold.)

Please understand: I do NOT trust the Fed to perform flawlessly. Although they have improved dramatically versus their performance early on, they still lack perfect information and can be expected to get (at least) the timing wrong, if not the policy direction as well. I merely trust the imperfect Fed to do a BETTER job of preventing both dollar-inflation and dollar-deflation than would: (a) politicians; or (b) South African or Russian gold miners.

Why do I trust the Fed more than the gold bugs? Because of the evidence. I've been hearing the dire warnings about hyperinflation for at least forty years, including the most recent two years since the Fed has been "printing" all of that fiat money; money which, according to gold-peddlers like Glenn Beck, was supposed to trigger the Weimar scenario. As usual, "Weimar USA" didn't happen -- yet; also as usual, it's supposedly "just around the corner."

The gold bugs seem to be ignoring the equation of exchange, MV=PT, which tells us that there is no price inflation (P) when an increased money supply (M) is offset by falling money velocity (V), which is what happens to money velocity when newly-printed money just sits there in excess reserves. Further, the equation also tells us that DEFLATION can be the dangerous condition EVEN IF the money supply increases. [In the real world, it is IMPOSSIBLE to measure the "money supply," as the Fed has learned since Volcker's chairmanship; that's why the Fed now targets the interest rate instead of the "money supply." But the equation of exchange is an instructive exercise in thought in any case.]

In short, the evidence tells me that the Fed is on the right track, and that the hyperinflation peddlers haven't looked closely enough at either the evidence or the equation of exchange.

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