Just found a interesting article from Milton Friedman talking about the Gold Standard
https://miltonfriedman.hoover.org/friedman_images/Collections/2016c21/SundayTimes_1976_3.pdf
The whole thing is worth a read. In it he had this quote
"A valid question is this: If you view gold solely as a commodity, what is a reasonable price for it? One of the arguments that is made for gold as a store of value is that it is a hedge against inflation.
Over the past fifty years, that has not been the case. Gold has not in fact proved a very good hedge. I once made the calculation that if somebody had bought gold in 1929, and had simply held it until today, paying something like 3 per cent per year for both carrying costs and loss of interest – after all a very modest allowance – he would today have something like a total purchasing power equal to about one-fifth of the amount he started out with. Anybody who held it only from 1929 to 1934 could have done pretty well, thanks to the U.S. rise in the price of gold to $35 an ounce. Anybody who held it from 1968 to 1974 would have done very well; but throughout the rest of that period anybody who held it continuously would have done very badly. Historically, gold has not proved a very effective hedge against inflation"
What is interesting to me is that his observation came a few years after Bretton Woods ended (It ended in 1971, and the article is from 1976)
The world started, what Friedman called, an "international paper money standard" with free floating exchange rates.
Yet, in real time, Friedman could not see the value of gold. He was looking at the past (when the gold price as mostly fixed) in order to judge its role during a REGIME CHANGE (namely, the international paper money standard at the time)
Indeed, if you look at the gold returns from the year of the speech to today, they were a 6% nominal return or a 2.44% real return a year. Pretty good for this supposed bad store of value
Which leads to the following realization/hypothesis, what if the corona crisis is one of these types of regime changes? That is, the point in which QE programs get expanded in such a way that it can drive down the value of paper currencies in a way that is more significant than previous periods of the international paper money standard. Given the accumulated debts from goverments, deficits and accumulated base money in the central bank balance sheets, its not possible to look at the recent past as a guide (which is the mistake Friedman made), because something changed.
Friedman talks about how the gold standard instituted a certain level of discipline in governments, and also governments didnt want to play a big role in terms of spending back then. That discipline will not be present and governments do want to play a huge role in the economy today. So the elements for an inflation crisis are there
I guess the true test will be how many central banks turn a blind eye when inflation starts to be above their stated targets. How do they react when velocity picks up after the mass vaccination. How quickly they talk about asset sales, etc
