GTSCW: Golden Edition
In this week’s Graphs that Subvert Conventional Wisdom we see why monetary policy shouldn’t be run by gold standard cranks that think it’s just obvious that the Fed’s loose monetary policy is debasing the dollar and causing commodity prices to spike. Only a gold standard can prevent that! Ahem.
David Andolfatto of the St. Louis Fed:
Imagine that you are 50 years old in September 1980. Imagine that a trusted friend of yours–oh, let’s say your doctor–convinces you to put all your savings into gold. The reason he offers is that the Fed is pursuing a policy of “relentless money expansion.” He warns you that the money supply is set to grow by 300% over the next 20 years. So you listen to him.
You buy gold at $673 per ounce. And then you wait. You wait until you turn 70. And then you go to withdraw your savings. You discover that the gold price in March 2001 is $263 per ounce. That’s a whopping rate of return of…wait for it… -60% over 20 years. That’s a minus sixty percent.
(graph via MacroMania)