When the US was on the gold standard, the value of the dollar was tied to a specific amount of gold, providing a degree of stability to the currency. After leaving the gold standard in 1971, the US adopted a fiat currency system, where the value of the dollar is not backed by a physical commodity but is determined by the government’s declaration and the market’s perception of its value. Several factors have contributed to the decline in the purchasing power of the US dollar over time, including inflation, which is the general increase in prices for goods and services. As inflation occurs, each unit of currency buys fewer goods and services. Additionally, economic factors, government policies, and global economic conditions can influence the value of the US dollar.
The Fed created a system that is designed to devalue dollars
The Federal Reserve System, often referred to as the Fed, was established in 1913 with the passage of the Federal Reserve Act. The Federal Reserve Act was signed into law by President Woodrow Wilson on December 23, 1913. The creation of the Federal Reserve marked a significant shift in the United States’ approach to monetary policy and the regulation of the banking system. The Fed is responsible for implementing monetary policy, regulating and supervising banks, and promoting the stability of the financial system. Inevitably though as the Fed expands the monetary supply of fiat US dollars, the value of our US dollar is guaranteed to lose purchasing power and the value continues to dwindle.
The US Government continues to spend what it does not have
The US Government often engages in deficit spending, which occurs when its expenditures exceed its revenues in a given fiscal year. The government’s budget consists of two main components: expenditures and revenues. If expenditures (such as government programs, defense, and social services) exceed revenues (such as taxes and other income), a budget deficit occurs. Annual deficit spending today by our government is between $2 and $3 trillion annually. The national debt when President Reagan took office in 1980 was around $900 billion. Today in 2023 the US national debt will eclipse $34 trillion any day now. All this deficit spending by our government is a contributing factor to the continued loss of purchasing power of our US dollar. The US national debt by 2030 will very well be greater than $50 trillion.
The purchasing power of the US dollar is tied to the cost of our debt
The United States services its debt through a combination of methods, including paying interest on outstanding debt, issuing new debt, and refinancing existing debt. The annual cost to service $34 trillion in the current market is over $1 trillion annually. With $50 trillion in debt at 4%, the annual debt servicing cost will be $1.5 trillion. $50 trillion at 8% would be $3 trillion in interest cost per year for the US Government. The unfunded liabilities of the United States could very well be $200 trillion. These unfunded liabilities like Social Security and Medicare still have to be honored. The debt situation of the United States is a direct reason why the purchasing power of our US dollar continues to dwindle.
All fiat currencies are losing purchasing power
There are hundreds of fiat currencies throughout the world. Every one of these continues to be printed out of thin air and abused by each select government. These central bankers and politicians should be ashamed of themselves. Anyone can make promises they cannot keep to get elected. Any government with a fiat system can spend money that they don’t have. All of the major fiat currencies have lost 95–99% of their purchasing power in real terms since 1971. The fiat experiment that started in 1971 is the same fiat experiment that is on its last leg today. We are now entering the exponential phase before the collapse. Can you imagine the purchasing power of our US dollar when this happens over the next decade? It is not a pretty picture folks. Most people have no idea what the future means for the purchasing power of our paper currency.
The Big Mac Index is a simple way to see how our dollar loses value
The Big Mac Index is an informal economic indicator that was created by The Economist magazine in 1986. The basic idea behind the Big Mac Index is the concept of purchasing power parity (PPP). According to PPP, in the long run, exchange rates between two currencies should move towards the rate that equalizes the prices of an identical basket of goods and services in any two countries. The Big Mac Index uses the price of a Big Mac, produced and sold by McDonald’s in many countries around the world, as a proxy for this basket of goods. A Big Mac was $.45 in 1966. Today a Big Mac is around $6 or $7. $1 in 1971 is equivalent in purchasing power to about $7.60 today.
$1 in 1999 is worth $.55 today
Your eyes are not deceiving you. $1 in 1999 is worth $.55 today. On the other hand, $1 in physical gold in 1999 is now worth $7 in gold. We should think of gold as the only real money throughout history that has survived in its original form. When we look at the purchasing power of the US dollar over the last 23 years and compare it to gold the difference is drastic. But that is exactly how gold should be looked at. The paper fiat dollar has historically dwindled in purchasing power over time. Physical gold has held or gained purchasing power over time. Physical gold is a store of value, paper fiat currency is not.
The increase in M2 Money Supply affects our purchasing power
M2 is a measure of the money supply that includes all elements of M1 (which is the most liquid form of money) and adds other types of near money. M2 includes assets that are highly liquid but are not directly usable as a medium of exchange. The components of M2 include currency, demand deposits, savings deposits, money market mutual funds, and other near money. M2 money supply in 1980 was about $1.6 trillion. Today the M2 money supply is over $20 trillion. The increase in M2 money supply in the United States since 1980 can be attributed to various factors, including economic growth, changes in financial practices, monetary policy (low interest rates, debt, and printing presses), and shifts in the regulatory environment. The increase in M2 money supply since 1980 has directly affected the purchasing power of the US dollar. As M2 grows substantially, the purchasing power of our US dollar dwindles.
It should not be a secret that our fiat monetary system was built to be torn down eventually. Regardless of that being true, it is amazing that many do not realize what is happening to the purchasing power of their paper fiat currency. That paper fiat currency here in the US is called the US dollar or more accurately referred to as the Federal Reserve Note. It says it right on the front of your bills Federal Reserve Note. As money printing and debt increase exponentially more over the next decade, the value and purchasing power of our dollar will continue to dwindle, possibly crash. That outcome for a money saver with a nest egg is unacceptable and impossible to recover from in some instances.
Purchasing power can be held on to historically over time with physical gold and silver. Once again as stated above, $1 in 1999 is now worth $.55. $1 in gold in 1999 is now worth over $7 in gold. $1 in physical silver from 1999 is now worth over $5 of purchasing power in silver. Paper fiat currency continues to dwindle while tangible assets like gold and silver have historically kept up and sometimes exceeded lost purchasing power in our Federal Reserve Notes, I mean US dollars. Gold is real money; paper fiat according to continued lost purchasing power is not. Paper is just easy and convenient. Paper is what the government can abuse and dump it all on their people.