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A monologue on currency devaluation
through the process of inflation.
Greetings, I would like to talk about a
subject of which I believe to be of great importance. It is to do with the
devaluation of our currency.
The continual and increasing issuance
of U.S. dollars has steadily eroded its value. This has been particularly
pronounced since abandoning the final vestige of the Gold Standard some forty
years ago.
John Maynard Keynes, perhaps the single
most influential economist of the 20th century, said that, "by a
continuing process of inflation, governments can confiscate, secretly and
unobserved, an important part of the wealth of their citizens."
The following chart shows the value of
the U.S. dollar in terms of gold.
As you can readily see, the dollar has
depreciated over time. With the Coinage Act of 1792, the dollar was
officially defined in terms of silver. The nominal gold price at this time
was equal to $19.39.
The first devaluation occurred during
the War of 1812. After hostilities ended the pre-war convertibility was
restored. Following the Coinage Act of 1834, the dollar was revalued and one
troy ounce of gold had the nominal price of $20.67. During the U.S. Civil
War, convertibility of the U.S. dollar was suspended. But again, as with the
War of 1812, the pre-war convertibility was eventually restored. The Gold
Standard Act of 1900, officially defined the U.S. dollar in terms of gold,
instead of silver.
The next drop in the value of the U.S.
dollar came as a result of the Gold Reserve Act of 1934. This act was part of
the measures put forth by the Franklin D. Roosevelt administration during the
Great Depression. This act set the nominal price of gold at $35.
After the Second World War, the dollar
continued to be convertible to gold at the pre-war rate, but was the only
currency in the world to be so. Through the Bretton Woods Agreements of 1944
all other currencies were to be held within tight trading bands to the U.S.
dollar.
In 1971, it was feared that the United
States Treasury would be unable to continue its obligation of redeeming
dollars brought in by foreigners for gold. On August 15th of that year the so
called "gold window" was closed.
The severing of this last connection
between gold and paper money meant that all the world's currencies now
"floated" against one another. Gold soared from $35 to $195 an
ounce by the end of 1974.
With some notable ups and downs, U.S.
dollars have continued to buy less gold. As of December 2010 it now takes
over $1400 to purchase one troy ounce of gold. This represents a 97.5% loss
of purchasing power in just under 40 years.
The following chart, super-imposes the
amount of currency in circulation.
As we can see, there is an expected
decline in the value of the U.S. dollar as greater amounts are produced. If
this trend disturbs you, as much as it does me, then you would find it
prudent to transfer a sizeable portion of your wealth into something that has
a proven history of being a store of value - such as gold.
Mike Hewitt
Editor
DollarDaze.org
Mike
Hewitt is
the editor of www.DollarDaze.org, a website
pertaining to commentary on the instability of the global fiat monetary
system and investment strategies on mining companies. Disclaimer: The opinions expressed above are not
intended to be taken as investment advice. It is to be taken as opinion only
and I encourage you to complete your own due diligence when making an
investment decision.
©
2007 DollarDaze
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