“Only government can turn valuable items like paper and ink into something utterly worthless.”
-Attributed to Ludwig Von Mises
Under the coinage act of 1792, our US dollar was set by a standard of weights and measures under the Constitutional powers allowing Congress “…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures” (US Constitution Article I, Section 8, Clause 5). Our money was originally made in the form of gold and silver and therefore carried its own intrinsic value by being a commodity itself. However, our money has slowly evolved from this constitutional form of money, to what is now nothing more than paper.
The following shows the devaluation of our dollar as we removed our currency from the gold standard. Notice the first date is 1792.
Note: When looking at the price of gold, think of it actually as the value of the dollar. Lower gold prices = More US dollar value, Higher gold prices = Less US dollar value.
Date: Price of Gold
1792 $19.39
Our money was as good as gold, because it was gold as well as silver.
1932 $20.67 *6% increase in 140 years*
This change can be attributed to natural gold inflation as more gold is mined and put into circulation. Regardless, the value of our dollar was well preserved during this period.
1933 $32.32 *65% increase in 1 year*
The US begins printing massive amounts of paper currency in the form of Federal Reserve Bank Notes. These notes could only be redeemed at the reserve bank that issued them. This marks the beginning of the decline of the US dollar. President FDR also made the private ownership of gold illegal and confiscated private holdings at a rate of $20.67/oz. (notice: roughly 30% under market value). This was later revoked.
1973 $106.48 *229% increase in 40 years*
Nixon closed the gold window and stopped the practice of redeeming “green backs” for gold; Thus, completely removing our dollar from the stability and security of gold.
2009 $948.80 (August 27) *791% increase in 36 years*
The further deterioration of the dollar can be attributed to a large increase in the money supply over time as well as US debtors loosing faith in the ability of the government to repay debt. This is largely due to our ever expanding deficit. For these reasons, countries such as China, Russia and India have recently called for a new reserve currency to replace the US Dollar.
The threat of even further deterioration of the dollar looms as the monetary base has doubled just in the past 12 months. That means the Fed Reserve has printed more money in the past 12 months than its entire existence.
Monetary Base Chart:
This chart shows a staggering picture of the recent monetary policy (printing money) by the Federal Reserve. The spike at the end of the graph is not a glitch or an error.
What was called “bold” action by the President is by other standards, unprecedented recklessness. I know Ben Bernanke has ‘reasons’ why the Federal Reserve took such action, however the dollar is now in great danger because of an effort to prevent deflation. At this point, the only chance that the dollar has to maintain its value is if the Federal Reserve can pull that excess of money back in at precisely the right time, in precisely the right amounts. Otherwise, many economist predict inflation and in the worst case scenario, hyperinflation.
Paper currency not backed by a commodity is also known as fiat currency. It has been used by politicians to allow for irresponsible fiscal policy; primarily because under a fiat currency there is no limit to what the Federal Reserve can print and therefore what the Federal Government can borrow and spend. When the Federal Reserve prints money in order to buy bonds from the US Federal Governemnt, it is known as “monetizing debt”. This destroys the value of our money through inflation as you can see from price of gold (value of the dollar) over time.
True economic stability can only be achieved by sound money policy, where the supply of new fiat currency is severly restricted by law or through a gold standard. This is best achieved by backing our US currency with something of tangible value. We cannot continue to allow the value of our money to be manipulated by the private banking conglomerate known as the Federal Reserve.
A great start would be an internal audit of the Federal Reserve, which is currently not allowed. However, a bill has been introduced by Congressman Ron Paul to audit the Federal Reserve and it is gaining momentum. Petition your represenatives in support of H.R. 1207 and S 604. We deserve to know.
History of Money – Video: An interesting and more thorough examination of the history of US money and its departure from gold and silver.
“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
— George Washington
“Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.”
— Daniel Webster
“Experience, however, shows that neither a state nor a bank ever have had the unrestricted power of issuing paper money without abusing that power; in all states, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion.”
— David Ricardo
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
— Alan Greenspan
“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
— Vladimir Lenin
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