My Inflation Nightmare Cured

RIGHT-WING TALK RADIO these days is carrying fewer commercials for second mortgages. (Consolidate your debts, lower your monthly payments, and have enough left over for that dream vacation!) They’ve been replaced by commercials for gold. Gold bugs have long had a small place on the map of the American right, but to most people gold seems like a crazy investment. It doesn’t produce anything, unlike a company in which you might own shares. It can’t provide shelter, like a house. It’s too expensive to use widely in industry or commerce, except for tiny amounts that go into people’s mouths, wrap around their fingers, or hang from their ears. Gold just sits there. And yet the price of gold has gone from about $280 an ounce 10 years ago to about $1,140 today.


The only reason to buy gold is fear that the currency may collapse. Paper currency used to represent claims on a share of the gold in Fort Knox. Now it is just “fiat money,” backed only by the “full faith and credit” of the United States government. Ditto electronic money—the $5,000 you allegedly have in a savings account at the bank, whose only corporeal existence is on a hard drive somewhere. That $5,000 is $5,000 only because the government says it is. For the gold bugs, trusting the government seems as unwise as hoarding gold seems to most other people.


Another way to say “collapse of the currency” is to say “hyperinflation.” Hyperinflation is when inflation feeds on itself and takes off beyond control. You can have stable 2 to 3 percent inflation. But you can’t have stable 10 percent inflation. When everybody assumes 10 percent, all the forces that produced 10 percent push it to 20 percent, and then 40 percent, and soon people are lugging currency in a wheelbarrow, as in the famous photos from Weimar Germany.
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