“Normally a deep recession like the one we had would be followed by an enormous boom. But the reason it hasn’t is not lack of demand or deflation as the Fed believes, but lack of confidence in the soundness of the currency.”
No that ain’t it. If that was it, ie if you thought your money was going to be worth less each day, you would be spending it like there’s not tomorrow. Do you really think your average joe blow (95% of the people) wake up each morning thinking “Oh the dollar is being debased, I better not buy anything”?
My own take on why the economy hasn’t picked up more is for a couple of reasons:
1. The regulatory and political environment (Tax the rich, demonize profits and entrepreneurs, Obamacare is a huge drag, uncertainty about taxes, environmental regulations, etc, etc)
2. Much more difficult to get a loan than in the good old days, due to more stringent lending criteria, thanks in large part to regulations like Dodd-Frank.
Banks have a ton of money, (like a couple trillions in excess reserves with the fed), so basically all the money that the Fed is printing is ending up back with the Fed.
As for whether the dollar is being debased, you have to ask, relative to what. Currencies are just another asset class and they go up and down relative to each other all the time. So if you consider the dollar vs gold, over the past year or so, it’s been gold that has lost significant value vs the dollar. On the other hand, real estate has gained value over the dollar and gold.
I think people make a costly mistake in expecting a currency (whether the dollar or some other) to maintain the same purchasing power over time (whatever that means). Currencies, like all other assets are constantly changing their value relative to other assets.
If you want to maintain purchasing power, your best bet is not just to save dollars but to have a well diversified portfolio that includes many different assets, including the dollar, for you see, once the Fed starts the tapering, you’re going to see stocks take a dive, bonds may dive even more and so will real estate and gold. So your so-called “debased” dollar is going to buy a lot more stocks, bonds, RE and gold. It won’t be looking so debased after all, in fact it may end up being your best “investment”.... for a while at least.
As for whether the dollar is being debased, you have to ask, relative to what. Currencies are just another asset class and they go up and down relative to each other all the time. So if you consider the dollar vs gold, over the past year or so, it's been gold that has lost significant value vs the dollar. On the other hand, real estate has gained value over the dollar and gold.
Apart from a smallish correction to the overheated RE market, the dollar doesn't buy more of anything. A couple years drop in PM's is an eye blink unless one is speculating, not preserving purchasing power conservatively. Ultimately the rest of the world will accept your PM's not your US fiat.