And even 1980 peak is not the limit. We have almost a billion of people living in the Western world, and all these people are conditioned to believe that their dollars and euros and pounds maintain their value well. Imagine what happens if things start going haywire, America hyperinflates, Europe follows by lowering rates, and all these people lose their trust in fiat currencies. Also, imagine what happens if some country ends up going back to gold standard. There’s surprisingly little gold in the world. Total value of all gold ever mined is somewhere around $3 trillion at current prices. For comparison, total liquid net worth of all Americans is $30 trillion.
On TIPS: they are not as bad as people think. Government has been trying to keep some price increases from showing up in CPI, but it’s been mostly successful in delaying the effects. For example, they hid the housing bubble from CPI by using rent figures and excluding house prices. Guess what, now we’re looking at accelerated increases in rents nationwide as house prices are going down and former “homeowners” end up back in the rental market.
Overall, TIPS and gold are on two opposite ends of risk/reward specturm. TIPS are low risk (guaranteed not to lose any money) but low reward. Foreign currencies are in the middle. Gold is high risk (what if it falls back to $200?) but very high profit potential if you time the bubble and sell at the peak.
