The dollar is losing value over time. By construction. (on the other hand, it lost a LOT of value in the late 70s, also by construction, but not planned construction in that case!)
a little bit of inflation isn't a bad thing... it allows adjustments and lets steam out of the economy without forcing as much pain as a reduction in real prices would entail with hard fixed nomnal prices ... PLUS it keeps a little bit of a buffer from a deflationary environment, which IS painful, and has a more vicious self feeding cycle than the self feeding inflationary cycle.
Yup, economists (most) got it wrong in the late 50s to mid 70s... and thought there was a fixed tradeoff between inflation and growth. That led the fed chairmen under Eisenhower, Kennedy, Johnson, Nixon and Ford to conclude that if you accepted 5% inflation rather than 2% inflation you could permanantly push up growth rates by 1% a year.
whoops, they got that one wrong.
Carter appointed Volker EXPLICITLY to correct that mistake. Volker's major role was to be a credible "inflation hawk" and it cost the country a deeeeeep recession for Volker to sufficiently prove his point and crush inflation expectations... but it worked, and Reagan got the dividend checks to prove it.
THere will be more mistakes, true. (Greenspan not viewing asset prices in a "broader inflation index" is a good example)... but the Austrian idea that all bubbles and all misalignments in the economy are caused exclusively by government or monetary authority mistakes (or more to point --- ANY action they take) is pure crap. THere have always been business cycles, ups and downs, an crashes... always.
Credible monetary authorities can diminish the amplitude of the deviations, but not eliminate them. And then they make mistakes, also. Big ones sometimes. REALLY big ones ocassionally (like Winston Churchill's decision to attempt to restore the pound to its pre WWI parity after the end of the war (with some heavily Austrian sounding logic, btw). The pound lost its pre-eminent position in world finance... and we Americans can say "thank you very much" (the German monetary authorities also made EVEN WORSE mistakes at the same time... with decided UN-Austrian logic)
Will the same thing happen to the dollar eventually? Probably. Some day.
Will it be replaced by gold? (or some other specie) I hope not. But then I am a pinkocommie-dirtmunching-treehugging-flagburning-marriagekilling-palinhating-liberal.
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