Where Is Germany's Gold?
bloomberg.comSo here's how this works. Gold bugs are big fans of buying gold. They have lots of gold. Their narrative of the financial system is that gold is the uber-asset that all other assets must be denominated in, and that fiat currency is doomed to collapse. The massive run-up of gold prices during the financial crisis played into this narrative, and despite the fact that mainstream economists, politicians, bankers, etc. still thought of it as a "barbarous relic" (Keynes), gold-bugs saw it as the key to a prosperous economy.
So now, gold prices have been weak for a few years, so they have to come up with a new narrative. And that narrative is global conspiracy. So you get groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold is being squirreled away somewhere mysterious, or prices are being suppressed by faceless multinationals or what-have-you. Maybe it's true! I don't know, but there's never really been any evidence, and it just sounds like someone justifying a failed investment thesis.
[1] www.gata.org [2] zerohedge.com
It's always good to think about what evidence would convince you that the other side has a point.
I lean towards the side that thinks that the central and money center banks (not faceless multinationals) are suppressing the price of gold via fractionally-reserved lending of physical gold. What would convince me that this is not the case would be a comprehensive audit of the Federal Reserve's books and gold holdings.
You?
I think a dinosaur lives in the subways under Manhattan. I would be convinced otherwise only by a full audit of all subway tunnels conducted using a dinosaur scanner (which someone will need to invent).
But seriously, there are lots of things that are hard to prove wrong, but that's hardly a good reason to believe them. In your case, what motive would the Fed have? Has an employee of the Fed (or any other central bank) ever blown the whistle on this massive international conspiracy? If there's no good reason to think something, there really isn't much good reason to spend time proving it wrong.
Well, the Federal Reserver produces a paper currency, the dollar, and gold has historically been a competitor of paper currencies. So it makes sense that the Fed would not want competition in currencies, and would attempt to both disparage and devalue it.
The Federal Reserve is also intimately bound up in fractionally reserved expansion of the paper currency, so it is reasonable to assume that they might use the same basic technique with gold. And that, in fact, is the historical origin of banking, in the modern, leveraged sense: gold assayers began loaning out gold on a fractionally reserved basis, allowing them to collect interest beyond their core assets. Worked great until people ran on them.
So I assert that it is less irrational to believe that there is a possibility that central banks engage in manipulation of gold prices than it is to believe that there is a dinosaur living in the subway under manhattan.
YMMV.
If the Fed were lending gold on a fractional reserve basis, a huge number of people would know about it: employees of the Fed, bankers, counter-parties. Why are all of them keeping silent? Why does the Fed endear such intense (some would say insane) loyalty? How do they cover the tracks of this huge operation (both in terms of people and dollars)?
Also, to believe this you have to postulate that:
1) Employees of the Fed are personally concerned about gold destroying the dollar.
2) They are willing to do something illegal (or at least unauthorized) to protect the dollar.
3) So they came up with a complicated, elaborate plan to manipulate the price of gold down that perfectly plays into the narrative of gold bugs (note the nefarious fractional reserve lending).
It's not impossible!
1) Yes.
2) People involved in the banking system, by definition, are willing to fractionally reserve something
3) Nothing particularly complicated, same fence that fractionally reserved frauds have been running for a thousand years.
_shrug_
Proving that something does exist is much more straightforward than proving it doesn't.
I tend to lean toward everything being fine, but motive seems obvious. It's an extremely valuable pile of stuff being held by a custodian for many decades with no external audits. I can't think of many cases of people being okay with that situation.
I am not a goldbug but I do feel like some people are breaking their backs bending over backwards coming up with reasons to preclude any sort of audit for any reason. I read the article and yeah it sounds like there are a bunch of things that a forensic auditor would wonder about. Gold has been sitting around for half a century, and when the depositor wants it, the bank delays for years and then coughs up a tenth of the gold it promised, with all the serial numbers melted off. they say it took so long because of all the paperwork but apparently can't or won't cough up paperwork about the actual reason the bars were melted down. Isn't this what serial numbers are for? Isn't this what paperwork is for? Isn't this what auditors are for?
And what would make it almost the perfect crime is that if Germany thinks the gold's gone, it's arguably in their best interest to just keep quiet about it. As long as everybody think's the gold's there, Germany rolls along just fine.
This is what gets me. It doesn't even need to be an ongoing conspiracy. The gold could have been spirited away during the Cold War for some critical-at-the-time purpose, with every intention to be restored, and for whatever reason it just wasn't possible. Decades later you have an institution and a government staffed entirely by people who had nothing to do with it but are left holding the bag. As you say, there is literally no incentive to expose this fact, by anybody. The gold itself hasn't left the vault since the 1960's, it can be traded on paper forever if nobody looks.
To be clear I'm not saying this is what happened, just that there doesn't have to be an ongoing conspiracy among hundreds of people and institutions for the gold to be gone and nobody wanting to say anything.
> "using a dinosaur scanner (which someone will need to invent)."
I'm not sure I understand you fully. What is this portion of your comment analogous to?
I have an anti-dinosaur stone I'm willing to sell for the right price, it's very effective. Notice there are no dinosaurs around the vicinity of my stone.
And when everything fails, just pull a straw man! Right?
It's always good to think about what you'd do if your belief was falsified. Suppose that Ron Paul himself goes through every book, every record and every nook and cranny of Fort Knox personally with an electron microscope and announces he found only evidence that the Federal Reserve is and has been above-board with respect to the United States' gold holdings.
What would you do then? Would you actually say "Well, I guess my belief was wrong and I was misled by the people who promoted it to me", or would you find a way to move the goalpost and say that you'll continue believing until some other complex and politically-hard-to-manage thing happens? And then another, and then another?
I think what I would do, in that case, would be to come to the conclusion that it was not likely that the gold price was being artificially suppressed via fractional reserved lending.
So, let's get that audit going...
People should really try and understand what makes things valuable beyond the beanie baby pokemon hype bandwaggon.
Gold as a raw material is useful to a degree, just as diamonds are, but artificial scarcity [1] [2] and wild speculation create a mess of distortions.
[1] http://www.theatlantic.com/magazine/archive/1982/02/have-you...
[2] http://archive.wired.com/wired/archive/11.09/diamond_pr.html
At the end of the day we live in a world governed by supply and demand.
We're not going to shift to a 'usefulness' based mindset, and we should avoid shifting to the mindset that an object is equal to the sum of it's parts. Supply and Demand are king.
But demand for gold is not just jewelry and electronics. Demand for it as an alternative to fiat money is inversely proportional to peoples' trust in fiat money. So gold can be unneeded as an alternative for decades, and then be needed. Gold can be completely written off as a relic, a dinosaur... and then suddenly it's not.
In the case of gold, I think it is useful to look at the types of demand - jewelry and electronics consumption vs. currency hedge and speculation. In this way you can learn a lot about gold from bitcoin and vice versa.
The only conspiracy is the Gold Bug conspiracy.
The US did not have a Gold-backed dollar in practice. From 1933 onward, Executive Order 6102 was in effect, making it illegal for any individual to own more than 5 ounces of gold.
The majority of people living today have never lived in a time period where you could practically exchange dollars to gold. That's the true conspiracy. The Gold-standard arguably never even existed in the first place. (At least, from 1933 onwards)
Not a gold bug myself (its a purely speculative and non productive investment instrument), however gold's price was under pressure due to Indian government restrictions on its imports. Loosening of these restrictions is one of the factors the price of gold has appreciated even in the face of US dollar appreciation this year.
> So now, gold prices have been weak for a few years, so they have to come up with a new narrative. And that narrative is global conspiracy. So you get groups like GATA [1] and Zero Hedge [2] pushing various stories about how gold is being squirreled away somewhere mysterious, or prices are being suppressed by faceless multinationals or what-have-you. Maybe it's true! I don't know, but there's never really been any evidence, and it just sounds like someone justifying a failed investment thesis.
I've been following the Gold bug sphere in 2006, 2007 and there's absolutely nothing new about these conspiracy theories. They have been pushing them ever since, and you haven't even scratched at Bilderberger/Illuminati/Jews/Take your influential minority.
I'm not a gold bug.
Banks still hold gold, they do so while ignoring other precious substances. Maybe it is a barbarous relic.
But some of the vaults this stuff is held in... they've got much less of it than was believed. Where is it? Why is no one concerned? Why are there no plain and verifiable answers forthcoming?
> So now, gold prices have been weak for a few years, so they have to come up with a new narrative
Not sure about the narrative you describe, but it's a clear fact that it's harder and harder to buy gold anonymously, without declaring to the State where you stash it. Makes it practical the day they come to get it back and give you worthless paper instead.
If I was a government, I wouldn't even want to take it back. Storing gold seems like a hassle compared to storing the equivalent value in regular currency.
Really ? Why do governments keep tons of bar Gold then in the first place ? Have you ever seen the actual inflation of paper money over like, 50 years ? 1 Million USD used to be a lot of money back in the 60s-70s, nowadays it's a commodity and 1 billion is rather the new standard of "large sum".
Gold actually has intrinsic value. Fiat currency does not.
Yes, but is gold's value for the electronics industry anywhere near its market price? The demand seems a lot smaller than the offer (they use about 320 tons/year - http://www.bullionstreet.com/news/electronics-industry-uses-... and the metal is recyclable).
Harder, or easier? It was straight up illegal to own more than 5-ounces of Gold between 1933 and 1971 in the US.
Well, easier than that. But after 1971, you could go to a coin dealer, hand them cash, get gold, and I'm pretty sure they didn't report your name to the authorities.
Or gold was in a bubble that collapsed.
The Depression proves that the gold standard doesn't work. There was no stability; there was deflation.
Since the concept behind the gold standard means "gold always..." - a universal quantifier, one needs only show a counterexample to blow it out of the water.
> The Depression proves that the gold standard doesn't work.
Not really. The government went off the gold standard in 1914 when it began printing whatever dollars it needed. A legally fixed exchange rate, however, continued. This led to an increasing disconnect between the dollar and gold, by 1929 gold was worth about twice as many dollars as the legal exchange rate.
This is what lead to the banking collapse, as everyone suddenly realized this and rushed to exchange their dollars for gold at the official exchange rate. The runs persisted until the government suspended exchanging gold for dollars.
We see the same thing happen in modern times every time a government decides to peg its currency to a foreign currency, and then inflate it.
But that's not what happened.
http://www.nber.org/papers/w16350
The hypothesis is that France "hoarded gold" - kept more gold reserves than it printed currency. This led to a paucity of gold. Those nations that played by the rules could issue less currency than was needed. This led to deflation.
More generally, any time two unrelated commodities' values are pegged to each other, there will inevitably be a correction, usually wrenching.
Bimetalism, the attempt to peg the value of silver in relation to gold, has quite an illuminating history of failure.
Agreed that deflation is terrible. I hate paying lower prices for goods and services. Thankfully we have central banks to fight the scourge of lower prices.
I, on the other hand, love lower wages, higher real debts, and problems with planning.
Deflation is terrible. We can largely blame deflation for WWII.
And we all know that "mainstream economists" are a good source for unbiased opinions.
Sure. Just like "mainstream climate scientists", or "mainstream doctors", amirite?
It's a lot easier to find diametrically opposed economists. Not quite as easy as lawyers, but close.
You didn't just compare macroeconomics to actual sciences, did you?
"and despite the fact that mainstream economists, politicians, bankers, etc. still thought of it as a "barbarous relic" (Keynes), gold-bugs saw it as the key to a prosperous economy."
You mean the same bankers, economist and politicians of the bail out to big banking institutions?
You mean the same bankers, economist and politicians of the too big to fail?
the same bankers, economist and politicians that have brutally increased their wealth in the crisis while the people income has gone deep down?
You need to insult people that disagree with you, calling them "bugs".
This is like saying that all computer programmers are responsible for enriching themselves for hacking target and home depot. It is crazy that you are so easily dismissing an entire academic discipline.
It's hard to judge what is more secure... a promise of essentially the U.S. government that the gold belongs to us (Germans), and would be available for sale, or storing the gold in Germany, where it can be seized by an invader, and maybe even ordinary criminals or corruptions. And it would have to be moved again to be sold in bulk, because once Germany needs to sell vast amounts of gold, nobody would trust Germany to just write IOUs.
Times have changed. Invasion has become unlikely, despite Germany having borders to several foreign countries, with a history of centuries of conflict in Europe. Even corruption is unlikely today to take away significant portions of such a gold depot.
Still, the only purpose of this gold is as a currency, and as such it doesn't matter that much if it is stored in Germany or in some country you would probably have to trust anyway to make use of it.
The recent Bloomberg redesign is truly bizarre. Microsoft WordArt-esque text popping out as you scroll...
It's terrible is what is it. I have started keeping away from the site because of it unfortunately. On a smaller screen laptop I find that I have to scroll more to catch roughly the same number of headline I use to previously
Despite your downvotes, I agree with you.
I found it strange as well - sometimes the images popped up again and covered some text.
To be extremely cynical and pessimist: I guess it makes sense to bring the gold home in time for WW 3
(not only Germany is bringing their gold home, from the article France, Netherlands are doing the same)
A nice Bill Nye science geek type video from inside the gold vault of the Bank of England. https://www.youtube.com/watch?v=CTtf5s2HFkA
So if they are melting down bars and reforming them, that should put to rest the theory that The Federal Reserve's bars have been tampered with and are just gold-plated tungsten... right?
The tungsten substitutes are just part of "normal" dodgy street counterfeiting? http://www.businessinsider.com/tungsten-filled-gold-bars-fou...
Serious question: what exactly is the value of gold? I mean, with other rare metals as palladium or titanium their value can be inferred from industrial consumption, but what is the actual usage of gold and silver other than for filling teeth, making jewelry (we have had artificial "prices" with the diamond cartels) and trace amounts used in electronics?
It's an alternative to paper currencies. How much that's worth to you depends on how much you distrust paper currencies. How much that's worth to the global economy depends on how much the global economy collectively distrusts the money supply (and the central bankers and/or politicians that control the money supply).
This is a big part of why the price of gold moves the way it does. It's not that the value of currencies changes compared to gold, which is the unmoving reference point. Instead, what's going on is that peoples' trust in paper currencies fluctuates, which changes their desire to hold gold as an alternative.
It's not an "alternative", it's a store of value by its own merit, and has been so for thousands of years, while paper money is pretty recent and is by no means a good store of value or even a good medium of exchange, with the surge of digital money.
Paper money, in most countries in modern times, has been a more stable store of value than gold. Consider, for example, the price of gold over the last 10 years - the run up to $1700, the fall below $1200, the small recent recovery. Has that been because of the change in value of the dollar? No, most of that change is in the value of gold, not in the value of the dollar. That's not a very stable store of value. Even the Swiss Franc has been more stable, despite the recent shock.
Paper money has mostly been a more stable store of value than gold... except when it hasn't. When the paper currency becomes toilet paper, gold looks like the perfect store of value.
The modern role of gold, then, is more insurance than it is a store of value. (Or you could think of it as a short on currency.)
Serious answer: go read wikipedia's entry on 'gold'.
Here is how gold works: it doesn't matter if it is really there, as long as everybody agrees that it is there.
I don't see the benefit in having all of your country's gold reserves stored in your country?
Firstly, there's the the invasion risk the article referenced, to which I'll add internal political division (talking generally, not just about Germany, although 1989 was not that long ago in geopolitical time). Having all of your gold in the central bank sounds to me like having all of your eggs in one basket, waiting to be plundered.
But there's also the functional use of the gold. While I can't imagine these reserves being spent anytime soon, in the wider 50-100 year timeframe it's more likely that they may be needed for emergency purchases or as security. In that situation, having at least some of your reserves offshore, particularly in the US which is likely to be your wartime creditor based on history, makes more sense than having to ship it back in a time of crisis.
Repatriating it all just sounds like paranoia or nationalism to me.
TLDR: A good backup plan for your data involves an offsite copy. Why not the same with backup gold reserves?
The offsite copy involves trustworthy people, and unlike with data, there's no client-side encryption for gold.
If you do believe that the NY Fed, the Bank of England, and the Bank of France are "above reproach," then your argument is absolutely correct. But if you can't be sure of that—and this article is definitely attempting to cast doubt on that—then there's the usual argument about self-hosting. Amazon's probably a better sysadmin than most people are, but you're the only sysadmin that you have meaningful control over the competence of.
This story reminded me of an NPR story about the gold standard:
http://www.npr.org/blogs/money/2015/01/16/376967946/episode-...
The purpose of money is to facilitate trade and represent a relatively stable yardstick for valuation, not to be an investment. You don't need a gold-backed currency in order to invest in gold -- just invest in gold.
I thought all of the German gold was in the Philippines.
Disclaimer: I'm currently reading Cryptonomicon. It's a history book, right?
Yes, but not of our universe.
Amazing book, by the way. I would also highly recommend the whole Baroque cycle.
The Baroque cycle? Only if you thought Cryptonomicon was regretfully short, and the final chapter was the crowning achievement of Stephensons writing.
Otherwise, I'd read pre-Cryptonomicon Stephenson.
The Baroque Cycle was a lot of heavy chewing, but it was ultimately a pretty good story, and I was sad to come to the end of it. It's also, along with Cryptonomicon, one of the more interesting explorations of the world of money and finance I've found.
You might also enjoy REAMDE which it a bit faster-paced. I happened to enjoy Anathem as well, though that was also a bit of a slog. It did have a resolution though. And protractor.
Read all but Anathem. I'm still convinced Cryptonomicon is the pinnacle of his writing, and it's downhill from there. The story in Baroque Cycle was great, but good god, that thing needed an editor to do some serious cutting.
REAMDE was quick and entertaining, but it was the equivalent of a Tom Clancy novel. Or, fine, Michael Crichton.
After years of letting QUICKSILVER lie unread on my shelf I finally picked it up. It's amazing!
qui tenet teneat, qui dolet doleat: "he who holds may go on holding, and he who complains may go on complaining".
"possession is nine tenths of the law" as is currently said."
Time for plan Bitcoin.
Holy pop-out words Batman!
Yes, and I wish they popped out earlier... I kept having to scroll back to read them after I'd passed the gap.
Whenever I find myself in a conversation with a goldbug, and they complain about something like "the craziness of unbacked monetary systems" I say "I like your shirt. I will give you $500 for that shirt." (This assumes the shirt is clearly worth less than $500.) If they ask why I make such an offer, I ask if they would accept such an offer. If they suggest they would, then I ask why they would accept such an offer. If they think my "unbacked" $500 is crazy, why would they take the deal? The shirt is a real physical object, and the fact that it has value to them is demonstrated by the fact that they are wearing it. The $500 in paper money is to them "a fiction", as it says in the article. So why would they take a fiction over a real shirt that that gives them real value?
This rarely changes anyone's mind (few people ever change their minds about issues regarding money) but I hope I can at least raise the contradiction to the top of their minds. All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.
> The $500 in paper money is to them "a fiction", as it says in the article. So why would they take a fiction over a real shirt that that gives them real value?
He didn't say that fiat currency is a fiction, he said that he is worried that the world economic system might be built on the fiction of fiat currency.
Since you can print fiat, it's entirely possible in this current fractional reserve system that most fiat's employ to create a lot of artificial wealth.
Just because he's pointing out there could be a bubble doesn't automatically mean he ascribes 0 value to a US dollar, he just won't put his life savings in it.
> This rarely changes anyone's mind
Mainly because it's a dumb strawman.
> but I hope I can at least raise the contradiction to the top of their minds.
I really can't see the contradiction in thinking that there is a bubble in currency and still believing that said currency still has value in the current.
> All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.
Until people aren't willing due to inflation through debasement.... Thats the point....
I'm not a goldbug, but I'd answer to
> So why would they take a fiction over a real shirt that that gives them real value?
Because they can nearly immediately exchange the $500 (fiction) into something of real value (gold).
Thanks for raising this to the top of his mind.
But that would then imply that the five-hundred-dollar bill has value, because it can be exchanged reliably and easily for value.
The goldbugs, as far as I know, don't favor gold because it's shiny; they favor it because it's physical and it's historically been popular in so many cultures as a medium of exchange for things of real, inherent value (food, labor, housing, etc.). I think a definition of "value" that roots gold as having value because it's gold would be so self-referential as to be useless.
> But that would then imply that the five-hundred-dollar bill has value, because it can be exchanged reliably and easily for value.
No this is IMHO no valid implication. Say, goldbugs don't believe that money is something other than fiction. But they do believe that at least for the next few days this fiction will not break down in the society: This is enough time to buy gold. But they are not sure how much longer the "illusion" will hold up (say, for a month?).
So the right question to ask (for the goldbug) is "only" what will happen earlier:
a) The money illusion breaks down? or b) I've converted the earned money into gold?
OK, fair. You're effectively defining "value" as "can be exchanged reliably and quickly for other things with/requiring value indefinitely". So the goldbug assumption is that there's a constant and nontrivial risk of people no longer accepting fiat money in the near term, but there is little to no risk of people not accepting gold. I think we can dispute the data informing this worldview, but that's a self-consistent worldview. Thanks.
There have been historical incidents where that worldview was correct. To say that such circumstances will never occur again seems optimistic. (To say that they will occur as soon or as often as the goldbug expects seems unrealistically pessimistic.)
That is a good argument. However, I suspect that their is a subtler form of the gold bugs' argument that has more validity but they're not phrasing (or haven't even thought about): the $500 has real, serious value, but it doesn't clearly have $500 value.
What's the value of the shirt? That depends on a lot of things that aren't known to you, and might not be known to them: how long will it last? how versatile is it? what would it cost to find an equivalent shirt, or to resell it? etc. These things are also ambiguous at a clothing store, although less so. But what is clear to both you and the goldbug is that it's clearly and obviously worth much less than $500: you're willing to estimate a rough value, even though neither of you can't put an exact number on it.
The goldbug ought to be complaining that everyone looks at a five-hundred-dollar bill and thinks that it's clearly and obviously worth exactly $500.00. That is tied into a lot of things, including, like the shirt, how long it will last and what it can be exchanged for, and neither of you know these things for sure.
With our worldview and assumptions, you and I might conclude that the bill is definitely worth at least $495: the chance of government collapse or a run on the banks, even over the next several years, is much less than one percent, and we can expect to use the bill before inflation devalues it by one percent. The goldbug, with their worldview and assumptions, might conclude that the value is fuzzier and possibly as low as $400: maybe there's a 20% chance of a run on the banks in the next few years. That still makes it worth obviously more than the shirt.
So the goldbug shouldn't be arguing that the money is unbacked and valueless, and you're right that things (including bills) are worth what people think they're worth. The goldbug should be arguing that we as a culture are overvaluing the bill. (And normal people do make these calculations: ask anyone who travels frequently between two countries with different currencies whether they prefer to keep cash in one currency or the other. Even over such a small value, there's a good chance they'll have an opinion.)
Reading between the lines of this article, there's an argument to be made that the world's large banks are not 100% trustworthy, as we'd hope. Maybe they're 95% trustworthy, but we should be skeptical of the claim that they're "beyond reproach", and simple human error, let alone malice, can cause gold to be misaccounted. And if they're misaccounting mere bars of gold, what else are they misaccounting?
What a strange opinion you hold!
| All currencies are backed by our willingness to accept them...
This is true!
| ... that is the only backing that any currency ever needs
This is clearly false- just consider any currency that has experienced hyperinflation. Currencies backed by commodities are not subject to such troubles. Or consider the hidden tax of even nominal inflation caused by monetizing debt (ie, printing "mind backed" currency to pay debts). Such systems are essentially a transfer of wealth from the poor to the rich since poor people don't have access to financing/loans.
| So why would they take a fiction over a real shirt that that gives them real value?
Of course both the shirt and paper money have value, subject to supply and demand. But, the paper money tends to hold on to its value better when its backed by something more than the restraint of central banks.
>This is clearly false- just consider any currency that has experienced hyperinflation. Currencies backed by commodities are not subject to such troubles.
This is completely false. When silver was discovered in Nevada the price was massively affected. Hell, Spain's economy was wrecked by the importation of gold from the Americas.
If we ever figure out how to bring asteroid resources to earth reliably, or if someone discovers a large deposit of gold you will see just how "stable" the value really is.
> So why would they take a fiction over a real shirt that that gives them real value?
Ok, relax, I'm a fan of fiat currency as much as anyone, but your argument is a bit off.
Most people who argue for a gold standard aren't debating some innate worth of money. They're generally arguing that a backed currency restricts the government's ability to simply print money and create out of control inflation, which has actually happened many times.
My response to that would be that our democratic system has created a sufficient dis-incentive to do that and the fact that we haven't yet is sufficient proof that it works.
That said, I try not to keep my assets too liquid. Oh well =)
>government's ability to simply print money and create out of control inflation, which has actually happened many times.
...I suppose that it doesn't even have to be out-of-control for it to have a fairly dramatic effect...
http://observationsandnotes.blogspot.com/2011/04/100-year-de...
See that wonderful spike upward in the chart you're quoting? That would be the Great Depression.
I assure you, inflation is the lesser of two evils. Deflation is much, much worse.
I'm not a gold bug either, but I think there is a flaw in your example. The owner of the shirt might be worried about the eventual devaluation of the dollar, but trust its short term stability enough to believe the risk would be worth it to trade their shirt for lots of fiat currency, and immediately use the fiat currency to buy 30 shirts.
They took a small short-term risk to increase their tangible goods by 300%.