vincecate wrote:Classic deflation comes from trying to return from an inflated paper money back to valuable gold at some unreasonable exchange rate. Also, in a gold coin system if lots of people start putting gold under their mattress you can get money becoming more scarce and more valuable. But under fiat money there is no precedent for more than about 2% deflation. Governments love to make and spend money to solve the deflation problem. Under a gold coin system prices could go up or down a little bit each year with nearly equal probability but since going to pure fiat money prices almost never go down any more.
The world does not need to keep the dollar as the world reserve currency and there are real moves away from that. No reason to assume it will last forever. Might only be a few more years.
Vincecate, while I do not have proper numbers to reference, I am positive we "world/USA" has already had a much greater than 2% deflation in this current recession. Take a look at the tens of tillions of dollars lost in RE, market, investments, companies and stocks vs the 1.4T created from QE (and not 40% is even spent yet). I just can't see anything but "More wealth has been destroyed than created" numbers. So there is the precedent you asked for IMO.
The odds of having a gold backed system again that is backed by reason and insanity (non-greed) with today's generations, virtually impossible. You would also have to take gold off the stock market so it doesn't go up or down in value but is set. Personally I think food and oil shouldn't be traded either.
There is absolutely nothing to replace the USD as a world currency right now (I've heard) for the next 20 years or so. Something like 10 trillion a day is exchanged through USD, there is no other currency that can replace that volume.