The U.S. dollar index, “an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies” [1].
> How do you square it with a chart of USD value versus an asset which has held consistent value for millennia?
Gold has appreciated relative to the dollar since its 2016 low.
Granted, it took until 2020 for gold to regain its ca. 2013 price. That doesn’t translate into any information about inflation in that interval. Nor about U.S. export/import balances or the dollar’s strength. Unless you’re in the gold business, gold prices are a facile measure of anything economically useful.
> dollar relative to a foreign currency is very different metric than value of a dollar relative to a real asset
Agreed. Which is why we have different words for each.
Saying “USD is down” unambiguously means the former. Inflation unambiguously means the latter. Saying inflation is up in response to an article about inflation being up is tautological. So, in the spirit of Hacker News, I assumed they weren’t being flippant but were instead factually wrong.
It's not unambiguous. In fact when people say the dollar loses value over time they are almost always talking about local currency only, not in relative to foreign currency terms.
"USD is down" is only implied to be about foreign currencies in a trading/finance context
> when people say the dollar loses value over time they are almost always talking about local currency only
"Dollar loses value" and "USD is down" are different words. The former is ambiguous. The latter is unambiguous. Particularly in response to an article about inflation. Again, "USD is down" is, given the context, either inane or wrong. I'd prefer to be wrong than stupid.
The comment was relative to why the market was up. The point is, in real terms the market is not in fact “up”. The market is repricing based on future expectations of the real value of the USD.
The terms “real” and “nominal” make it abundantly clear that I’m not talking about USD versus other currencies. Why are other currencies even part of the discussion? I can only guess because it was an easy retort to “disprove” my statement and derail the discussion.
The meaning should be clear enough from the context of my full comment. I’d rather hear feedback and discussion on that, than debating something I wasn’t even trying to claim (e.g. whether other currencies are rising or falling faster than the USD).
Countries are beginning to do real volumes of energy trade outside of the USD. Countries are also questioning the level of USD reserves they want to be holding with the Fed. This structural decrease in the demand for US dollars will have a very lasting impact that will become clear over the next decade. This is a tidal change which was a long time coming, but I think the weaponization of the USD and SWIFT thru never-before-seen sanctions have pushed it over the edge.
It doesn’t help to be reaching this point with debt levels at 140% GDP and deficit to GDP over 10%…
Because demand for dollars has been so consistently high in modern history, we usually think of inflation in terms of the US economy being too “hot” or because we’ve printed too many dollars. It can be bizarre to think about changing “demand” for a currency, because, who doesn’t want more money? The light bulb is understanding there are many options for storing value, and demand for one option versus another shifts through a combination of present utility and future expectations.
I believe that the structural reasons driving inflation this year and for the next decade have shifted entirely into something the US has never seen before, and it’s very interesting to consider where it will lead. The war and COVID are confounding variables which I believe some people use to try to ignore the new reality.
A weak USD relative to other currencies isn’t an entirely terrible thing. It leads to massive re-domestication of production for one thing, as imports become too expensive. But that depends as much on how quickly other countries devalue their currency.
In the near term the biggest hit from debasement of the local currency is to anyone with liquid savings, or anyone who has stagnant wages (e.g. once yearly wage increases become insufficient to not lose significant purchasing power).
> Why are other currencies even part of the discussion?
Referring to dollars by their ISO currency code is an FX convention. Given the article you're commenting on is about inflation being up, which is a more direct way of saying dollars have lost value vis-à-vis real assets, most people assumed you were (a) using the convention correctly and (b) not re-stating the headline.
> a market graph going back to 1880 in a discussion about how the market is reacting to news today?
Centuries and decades (your graph) are similarly useless in evaluating intraday reactions. These data are widely available [1]. American equities are up, in real terms, for almost any reasonable time interval.
Pricing the S&P 500 in gold is a convoluted way of looking at it, but for purposes of discussion, even that chart shows a 2022 decline followed by a recent rally. All up from the last few years. At par with 2006, which sounds dismal, until one consider the chart shows the S&P 500's price, not total return. The S&P 500 currently spits out a 1.45% dividend yield [2].
Someone who bought the S&P 500 in 2006, a terrible year, is unambiguously better off than someone who bought gold. In nominal terms. In real terms. In gold-priced terms.
This is clever. One can vary the value of "good" to fit any asset. Taken in good faith, I'm curious about the suit discounts I missed between 2013 and 2016, when gold lost value (relative to the dollar).
> value of gold is invariant
Axiomatic arguments work for anything. Bagel is invariant. All price relative to bagel. One breakfast sandwich always costs one bagel.
It’s not supposed to be cute, but actually a useful historical fact. To be well clothed in any moment in human history would take the currency equivalent of roughly an ounce of gold. Since gold has been actual currency many times throughout human history (and is again in Russia as of a few weeks ago) it’s more useful than, for example, pricing in bagels.
Also note that while the value of the dollar in real terms can vary minute to minute and swing percentage points day-to-day and many percentage points year to year, retail pricing will take time to catch up due to the length of the supply chain and the cost of repricing. Retail pricing is “sticky”.
Keep in mind that over the last 100 years the US dollar has lost ~95% of its real value. It will most certainly do so again, and my opinion is that it won’t take nearly as long the next time around.
Gold has not held consistent value for millennia. Take anything that you buy, housing, food, oil, and price it in gold, then do the same for the USD. See which is a more stable way to price goods.
Gold is terrible for stability, which is why booms and busts were more common and longer before every single country learned that and dropped gold standards.
We haven’t had oil long enough to do the exercise.
In 500 B.C. in Babylonia apparently an ounce of gold would buy you 350 loaves of bread. It’s roughly the same today.
Augustus paid his centurions about 40 ounces of gold a year in 0 B.C. Today the median wage is about the same.
I don’t disagree about the booms and busts, I’m not saying that a gold standard is a solution.
The fact that pricing in gold is stable over millennia even within an order of magnitude is pretty cool. Certainly no fiat currency could say the same even on a 100 year scale.
>Certainly no fiat currency could say the same even on a 100 year scale.
No one holds fiat for 100 years, so it's a silly thing to worry about. No one hold currency even 25 years, so again, irrelevant. Fiat is designed to make pricing predictable and smooth out the booms and busts that gold causes. It's designed to be slightly inflationary to avoid deflationary spirals. Fiat has been the most stable economic basis in history. There never was a goal that a loaf of bread is $1 usd for eternity. There is a goal that inflation targets around 2%, and the resulting stability under this system allows loans to have lower interest, for businesses to make longer term financial plans, and for solid expansion of economies.
Another way to think of it over those timespans, is gold is simply a terrible thing to hold also. If you're claiming holding gold for 10,000 years breaks even, it's a terrible thing to hold. You might as well hold water or dirt. If gold is worth the same now as 100 years ago, you should have sold it immediately and invested into productive assets, such as Dow Jones index (which over the past 100 years returned 132 times the initial investment).
Since no one holds currency for long term investments, and for likely centuries decent investments have returned vastly more than gold, there is nearly zero use for gold. The love of gold is simply voodoo.
Currency is more stable for buying and selling and pricing over any range people hold currency. If you want an investment that has return, pick nearly anything except gold.
What do you mean? Perhaps you’re looking at the change (inevitably decrease) in the value of fiat currencies, not the change in the purchasing power of an ounce of gold.
The purchasing power of an ounce of gold in terms of real goods that can be obtained is remarkably consistent over human history, taking into account productivity increases which make everything actually easier to produce (rather than making gold or fiat currencies more “valuable”).
This is a characteristic of gold in particular (above all other commodities), due to a number of factors related to its density/portability, longevity, malleability, and the consistent rate over history at which it’s been extractable from the earth. It’s a rather peculiar if not spectacular equilibrium.
It’s a nice benefit that it’s also rather pretty, and interesting to consider to what degree that matters.
I mean, if you look at history, the perceived value of a lump of gold has changed a lot over time. Even if you assume that recent price differences are due to wild swings in the value of currency (apparently a dollar was worth twice as much in 2000 as in 1990), the claim that the value of gold has been consistent over millennia is just not true.
The way I know this was because of the giant laugh that my historian wife gave when I showed her your comment.
Sure. "Gold has been an expensive commodity for a very large amount of human history, and few commodities have this property" and "has held consistent value for millennia" are very different claims.
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