Over the last 100 years, the purchasing power of the US dollar has dropped by an astounding 95%. Since 1913, prices have increased by 2,000% (!)
The reason? The Federal Reserve, a private organization owned by banks and created in 1913, is printing new money, which has resulted in extreme monetary inflation. We saw some creation of money before 1913, which led to short periods of inflation and panic runs on insolvent banks. Since 1913, the Federal Reserve has consistently been bailing out banks (at the expense of the citizens of the US) when they get in trouble. So since then, the banks have been taking advantage of the government support net by taking extreme risks in their attempts to reach historical profit levels. The riskier the bet for a bank, the better. If it succeeds, the bank will make money. If it fails, the government (really, all of us) will cover its loss.
The purchasing power of the dollar will suffer
Let’s turn to late 2008. The Federal Reserve’s chairman, Ben Bernanke, created the Bailout Spike, injecting close to $1 trillion of new money into our economy. On April 15, 2008, the assets of the Feds, purchased with new money printed by the Federal Reserve, amounted to $866 billion. One year later, that number had grown to a staggering $2.2 trillion.
The result of such an explosive increase in the money supply? The purchasing power of the US dollar will drop.
Paper money is essentially a share in the economy of the issuer, so the paper money of a strong and large economy is valuable. After WWII, the US dollar became the primary reserve currency of the world because of our size and strength, and the US was, until recently, viewed as the world’s strongest economy.
The implications of a devalued dollar for the US
Over the past forty-some years, however, the US currency has been debased—by the US itself—by inflating its supply more than other countries and by excess borrowing and spending. The result has been price increases—inflation—and a drop in the value of the US dollar. Thus, other countries view the US dollar less favorably, and their declining confidence in our currency as the reserve currency of the world means that they will be looking to depend less on the US dollar. That means that they will prefer to sell dollars as soon as they get them, so they can store their purchasing power in a better store of value.
What are the implications for the US? First of all, it affects our ability to print new money to pay our bills and could lead to a collapse of the US dollar (which happens if its purchasing power drops by at least 50%).
How to make money and then export your financial crashes
During the booming years of 2000 to 2007, Wall Street securitized weak or directly bad debt instruments (such as credit card debt and the infamous subprime mortgages), then had them triple-A labeled before selling them worldwide. Wall Street would then make more money by lending to other weak borrowers. At that time, the confidence in the US economy was great, so banks and investors across the globe happily bought these securities. After all, the securities were apparently backed by the US government, so they saw the risk as very low.
Was the process corrupt? Obviously, but it was backed by Congress and Wall Street elites, who made hundreds of millions in bonuses. However, the bubble was bound to burst. The false prosperity slowed, causing US workers to lose their jobs and leading to mortgage foreclosures. These securities including stocks and bonds lost value, and 2008 saw the beginning of a worldwide economic crash. The solution of the federal reserve was to print our way out of the problem, cover the losses of wall street, and effectively dilute the value of our dollar, and that is why gold and silver moved up aggressively following the crash. We have in effect exported our real estate crash leading to all US taxpayers, as well as all other countries to repay Wall street bankers that created this bubble. Worldwide global powers took notice, and are on a path to not go through additional busts caused in the US.
How we use “Fake Money” to cover up the problem
Here’s how the US can be “living large” while being fiscally and monetarily irresponsible. Something that US citizens cannot dream of doing. Because the US practices enormous deficit spending with a huge trade imbalance, the US Federal Reserve needs to print “fake money” from thin air to pay for all the spending. Currently, the countries we import from (lead by China) accumulate billions of US dollars printed by the US Federal Reserve for the products we buy. These countries have no choice but to keep some of the printed money in their vaults and use another part of it to buy our Treasury bills. They need to do so to avoid trading back their dollars and raising the value of their own currency, which would make their manufacturers less competitive exporters.
Once the money we printed returns into US treasury bonds from overseas, we are paying interest on these securities by printing new fake money. And everyone hopes this recycling process will go on forever.
However, it looks like the process is nearing its end. In 2009, China and Russia suggested that a new system be created to replace the US dollar as the global primary reserve currency. Across the world, countries have been growing tired of and frustrated with the US dollar’s status as the world’s reserve currency. They will no longer put up with—or be able to afford—the aftermath of poor US decisions and misuse of its privilege. The real danger to our economy is that all the dollars that we have been printing and exporting for all these years in return for imported cars and products—money that is now sitting in other countries’ vaults as reserve currency—will come back to us, leading to a complete US dollar collapse.
Wait for another article about all the signs we see that it’s been a fun ride that’s about to end.
What does a crash of the dollar mean for your wealth?
Well, we have definitely provided you with a grim message from a purchasing power perspective. A crash of the US dollar means that anyone sitting on cash will see it wiped out. It also means that anyone that is enjoying a fixed monthly income from Social Security, a pension, or an annuity will see their monthly purchasing power devastated. If the US dollar collapses—as all paper currencies have before throughout history—a $3,000 monthly income may let you afford only $300 in today’s groceries. Or, maybe, even as little as $30.
But there is a silver lining: For over 5,000 years, the only way people were able to protect themselves against paper currency devaluation is with gold and silver.
When the dollar devaluation will occur, and the crowds rush to buy gold and silver to store value, the price of precious metals will soar, overshoot, and over-correct, just like we saw in the late ’70s when gold’s price went up 8 times its value and silver 11 times. Anyone acting before the dollar crashes and buys the metals while they are cheap can actually make money, as precious metals become really valuable during a bullish cycle. How high can the price of gold go in such a scenario? Stay tuned for an article about the rising price of gold
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