Summarized by Walter Sorochan
Posted January 30, 2011 Updated November 14, 2021. Disclaimer The information presented here is for informative and educational purposes only and is not intended as curative or prescriptive advice.
The dollar has been losing purchasing power since 1900. It is fiat currency Wiki: fiat money that a government has declared to be legal tender, but it is not backed by a physical commodity like gold or silver or other property. In contrast to paper money, gold is real money that has a history of use! Money can be anything that is widely accepted as “payment” for products and services. This article attempts to explain this complex issue.
So ... How smart are most Americans about the value of money and gold? View the videos below to find out:
James Rickards, video:1/24/2018 U.S. Dollar Decline | Currency War with China | Gold Price Spike
Below is a 2013 graph illustrating the decline [loss] of the USA dollar purchasing power:
Byron King, in Whiskey & Gunpowder, March 01, 2010, published a graph illustrating the decline of purchasing power, e.g. US dollar, at various historic times: King: Gold -US dollar prediction 2010
Every year, on average, your US dollars lose 3.42% of their buying power. That’s just the “official” government number. And even at that under-reported rate, you’re looking at a compounded inflation rate — going back to the start of the Federal Reserve — of a mind-blowing 2,071%!
In today's  economy crisis, national governments are unable to balance their budgets. [ e.g. USA running massive deficits in graph on right ] They have continued to spend more than they get as revenue from taxes and other incomes; and created debt. United States and the world’s governments are attempting to solve their debt problems by issuing more debt – debt which they are trying to pass off as money. More debt piled onto more paper debt. USA government has been creating paper money by printing more money in an attempt to have more money to pay loans and bail out banks in financial trouble. This has resulted what is referred to as "fiat" or false paper money because it is not backed up by tangible goods, property, possessions or collateral. Wiki: fiat money Without collateral, the new printed money has no real value, including the American dollar! This has resulted in devaluation of the American dollar and hence the dollar losing purchasing power. By purchasing power is meant that the dollar buys less goods than it did before devaluation.
The illustration on right shows how much a hamburger costs in various cities. This is one way to interpret purchasing power. Article by Wehr hamburger value is no longer active. A hamburger in different countries costs differently, based how long it takes a worker to earn enough money to pay for the same kind of hamburger in another country; or purchasing power of their money. But real purchasing power is more complicated than this.
"The chart [ below ] visually shows the near-perfect inverse relationship between the amount of money in
Article by Hewitt Purchasing power is no longer active.
circulation and its purchasing power. It reflects the simple relationship that prices increase approximately proportionately to money supply. Stated differently, it reflects the basic tenet of monetarism that in the long-run, price inflation is a direct consequence of increase to monetary inflation. It also underlies the classical theory of "money neutrality"; whether one believes that money is "neutral" or not is a completely different story. Article by Hewitt Purchasing power is no longer active.
Looking at the data, from January 1971 to December 2008, the U.S. money supply increased 16.8 times; this was accompanied by an 81.1% drop in purchasing power of the dollar, as implied by the governmentally-reported CPI. Thus, the data suggests that a 17-time increase in money supply has resulted in an approximately five-time fall in purchasing power. This observation does not attempt to explain this significant gap, but suggests that the gap may be due to (1) increases in productivity, (2) over-reported money supply, (3) under-reported CPI, (4) over-valued asset prices (stocks, bonds, real estate), or possibly (5) a fundamental flaw in the quantity theory of money. Hewitt suggests, in order of significance, (3), (4), and (1) as the most important factors explaining the gap." Article by Hewitt Purchasing power is no longer active.
When currency loses value, investors try to protect themselves by investing in more safer securities, like gold and silver. Before 1971, gold was always used as a basis for money. It is generally accepted that gold has functioned well as a store of value and has maintained its purchasing power for over 5000 years.
The table below Dollar vs Gold illustrates the total destruction of paper money against gold in the last 100 years and shows how many ounces of gold that $1,000 bought at various times. In 1910, $1,000 bought 40 oz of gold at $25 per oz. Today in 2010, $1,000 buys 0.80 oz of gold at $1,230 per oz. This is a massive decline of 98% in the value of the dollar measured in real terms in the last 100 years. The next significant year is 1971 when Nixon abolished the convertibility of dollars to gold. It was this disastrous decision that opened the floodgates for the credit and money creation that we are experiencing currently. The dollar is down 97% since then. But even if we take more recent years, the purchasing power of the dollar measured in gold has declined catastrophically. Since the 1999 gold low, the dollar has declined by 80% against gold and since 2002 (when Matterhorn Asset Management recommended major gold investments) by 76%.
source: Dollar vs Gold
Adjusted for real inflation (as per shadowstats.com) the 1980 gold peak of $850 in today’s prices corresponds to around $7,200 today. So gold did easily go up 6 times from the current price of $1,220 and still be within normal parameters.
Virtually all currencies show similar declines in value against gold in the last 100 years.
Economists like to explain the value of money by discussing inflation and deflation.
Inflation Inflation vs deflation is a rise in the average price of goods over a period of time. The rate that prices increase is known as the inflation rate. Inflation happens either when prices go up or when it takes more money to buy the same items. Economists typically consider inflation to occur when the prices increase over a period of time rather than from one month to the next.
Monetary inflation happens when the amount of money in circulation increases faster than the quantity of more print money. Today, the government purchases securities from banks, thereby increasing the money supply.
Monetary inflation is often followed by price inflation – the inflation that most consumers can see and identify. Obviously, price inflation happens when the price of goods increases. When there is an increase in money circulation, the value of the dollar goes down. Subsequently, businesses must increase the price of goods to get the same value from their products.
Until 2010, the US was able to find lenders willing to buy its debt and keep things afloat. But this began to change in 2011. As of 2019, the US bonds are in a bubble!
Deflation Inflation vs deflation is when the average price of goods falls. When the inflation rate falls below zero, indicating negative inflation, we know that there has been deflation. Remember that the inflation rate is calculated based on the change in the Consumer Price Index, or CPI.There are four situations that cause deflation. Inflation vs deflation
Inflation and deflation are both parts of a properly functioning economy when all the players in the economic system have an equal playing field and play by the rules. Typically inflation and deflation happen in cycles and can correct themselves without any government intervention. However, in extreme situations, like the Great Depression, the economy does need a helping hand from the Feds.
"Despite attempts by the lame-stream media to dismiss gold’s value as little more than a barbaric lust for things shiny, gold is money. Always has been and likely always will be. Reasons for gold’s unique monetary properties:
Ever wonder why the price of gold and silver on the stock market never changes that much? Well, there is good evidence that the stock market is being manipulated by the United States government. Numerous economists and stock market brokers: Frank Veneroso wrote Gold Book 1998, Michael Edwards Article by Edwards: Gold manipulation is no longer active.; Frank Holmes Article by Holmes: Gold price manipulation is no longer active; Chris Powell Article by Powell: Gold price manipulation is no longer active.; Craig Hemke Article by Hemke: Gold manilulation 2019 is no longer active.; Mike Gleason, Director with Money Metals Exchange Article by Gleason: Alarming Gov't manipulation is no longer active.; James Rickards Rickards: US dollar deline 2018, have pointed out that the value of gold and silver are being controlled and manipulated by USA government in an effort to keep printing more paper dollars, therby keeping the dollar and stock market steady. In other words, gold may be on the stock market but not in a free fall market. Frank Veneroso was the one who exposed all this; the gold leasing scheme, which is how The Gold Cartel did their thing so many years ago and how USA government was secretly controlling the stock market. It is how Gold Antitrust Action Committee [GATA] knows the central banks have much less than half the gold they say they have in their vaults.
"The gold price manipulation scheme will go down as the biggest financial market scandal in US history for numerous reasons. They include the destruction of the free market system in the United States. The manipulation of the gold and silver prices eventually led to the manipulation of US interest rates via the Fed, the stock market via the Plunge Protection Team, and to the currency markets." – Bill Murphy, GATA.org
Michael Edwards Article by Edwards: Gold manipulation is no longer active. has pointed out that "The point here is that the fundamentals underpinning the precious metals market have strengthened cumulatively since the gold bull market began. There has not been one point in time in the last 15 years, in fact, when these fundamentals have weakened. What has changed is the degree of intervention engaged in by the Central Banks and U.S. Government as a means of preventing the price of gold from rising and signalling to the world that the U.S. political and economic system – the system which issues the world’s reserve currency – is increasingly corrupt, criminal and entirely fraudulent."
This is what Thomas Jefferson said: “I sincerely believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (the banks) will deprive the people of all their property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” There you have it, in a nutshell. He told us what would happen if we allowed a private bank to print our money and it did. He didn't say that it might happen. He said that it will happen. He also provides the remedy in a very succinct and elementary way. Curran: JFK vs Fed Reserve bank
The Federal Reserve Bank is a "Private" institution who lends money to the U.S. Government at 4.5% interest with no backing they just print what they want. The difficult fix is to invoke Congress to dismantle the Federal Reserve Bank System. Then the federal government would have complete control of printing money and the dollar value.
Egon von Greyerz of Matterhorn Asset Management predicted on May 9, 2019: Greyerz: Gold Silver moves 2019
"Since 1971 the dollar has lost 97% in purchasing power and even at today’s level, the dollar is massively overvalued. .... My long standing target for gold of $10,000 in today’s money and much, much higher in inflationary terms, is now more probable than ever. But I hope it will never be achieved. When gold goes to $10,000, it won’t be under the same circumstances that we saw in the 1970s. Gold then went from $35 in 1971 to $850 in January 1980 – a 24x explosion in very different conditions. In the 1970s we had high inflation, weakening currencies and recessions in most countries.
.... Today, global debt is at an all-time high and the dangerous derivatives we saw last time in 2007-2008 are back again.... Metals are ready to start the most spectacular bull market that the world has ever seen. This market is like a coiled spring and we will see rapid moves to the upside in both gold and silver. The first target for gold, which could be reached quickly, is $1,600. Silver will probably go to at least $25 at the same time."
Governments printing more paper money results in the paper money losing purchasing value and more national debt. The government attempts to control all this. The government controls gold and gold controls the dollar. So if the price of gold goes down then the value of the dollar goes up. You buy less but pay more for goods. This is why gold and has not changed in value [between 1000-1300 dollars per ounce] very much in the last five or more years. Inflation cannot be cured through monetary and fiscal measures alone; it requires a fundamental change in social and political attitudes and this change usually does not occur until complete monetary chaos forces a change. You cannot cure too much debt with more debt.
Curran John P. "John F. Kennedy vs The Federal Reserve," John - F - Kennedy.net. Curran: JFK vs Fed Reserve bank
Edwards Michael, "Gold Manipulation: It’s Much Bigger Than You Think," Investment research Dynamics [IRD], July 29, 2015. Article by Edwards: Gold manipulation is no longer active.
Gleason Mile, "Evidence of Alarming Government Manipulation In The Gold Market," Money Metals, January 12, 2015. Article by Gleason: Alarming Gov't manipulation is no longer active.
Hemke Craig, "Craig Memke revealed: Gold manipulation, who in this manipulation," Video 32:18 mns. Financial Crisis, April 29, 2019. Article by Hemke: Gold manilulation is no longer active.
Hewitt Mike and Kraamir Petrov, "Money supply and purchasing power," Dollar Daze, May 25, 2010. Article by Hewitt Purchasing power is no longer active.
Holmes Frank, "Gold price manipulating happening now more than ever?" Video 5:18 mns, Kitco News, Octobrt 11, 2017. Article by Holmes: Gold price manipulation is no longer active.
King Byron, "Inflation US Dollar," Whiskey & Gunpowder, March 01, 2010. King: Gold -US dollar prediction 2010
Larkin Nicholas, Claudia Carpenter and Millie Munshi, "Gold Rising as Euro Weakens Spurs More Speculation (Update3), Bloomberg, May 24, 2010. Artoicle about Speculators buying gold is no longer active.
Money alert, "What causes inflation?" Money Alert, June 29, 2018. Inflation vs deflation
Murphy Bill,"15 years of facts add up to the same thing: gold manilupation!" Video 13:15 mns, Cambridge House International Inc., October 30, 2013. Murphy: Gold manipulation 2013 video
Powell Chris, "Manipulation of gold price as evil as WWII expropriations," Video 41:28 mns, Silver Bullion TV, April 15, 2019. Article by Powell: Gold price manipulation is no longer active. Founder of Gold Antitrust Action Committee [GATA]
Rickards Jim, "U.S. Dollar Decline | Currency War with China | Gold Price Spike," Video interview, Morning Money, January 24, 2018. Richards: US dollar deline 2018 video Jim Rickards has been the Financial Threat and Asymmetric Warfare Advisor for both the Pentagon and CIA. Author of book -The Death Of Money and The New Case For Gold.
Sin categoria, "Inflation in history - Where is the dollar heading?" Sin categoria: Inflation history 2019
Veneroso Frank, Gold Book, Book 1998, From 1991 to 1994 Frank Veneroso was the partner responsible for global investment policy formulation at hedge fund Omega Advisors. From 1995 to 2000 and prior to 1991, through his own firm, Mr. Veneroso was an investment strategy advisor to global money managers and an economic adviser to institutions and governments around the world in the areas of money and banking, financial instability and crisis, privatization, and development and globalization of securities markets. His clients have included the World Bank, the International Finance Corporation, and The Organization of American States. He has advised the Governments of Bahrain, Brazil, Chile, Ecuador, Korea, Mexico, Peru, Portugal, Thailand, Venezuela and the United Arab Emerates. Frank is a graduate from Harvard and has authored many articles on the subjects of international finance.
von Greyerz Egon , "ALEA IACTA EST," Oikonomikabkog - Matterhorn Asset Management, May 10, 2010. US dollar vs gold
von Greyerz Egon , "Moves in gold & silver will be on stilts," May 9, 2019 Greyerz: Gold Silver moves 2019
von Greyerz Egon , "Alea Iacta Est! Past the Rubicon and the Point of No Return," Whiskey & Gunpowder, May 24, 2010. Hyperinflation
Wehr Justin "Big Mac purchasing power [chart]," The Economist, May 24, 2010. Article by Wehr hamburger value is no longer active.
Wikipedia, "Fiat money." Wiki: fiat money