The Dollar Used to Be Worth Something
Once upon a time, when it could be said that people in power had a modicum of sense, our money was backed by something. For every dollar in your hand, you knew there was x amount of gold in the coffers.
This was good: “between 1879 and 1913, when the classic gold standard is in effect, the U.S. actually experiences an average deflationary rate of -0.02 percent. At the same time, consumer prices have a standard deviation of only 1.98. Inflation never falls below -4.74 percent or rises above 4.53 percent. The other periods, by contrast, have huge swings in consumer prices.” (1)
The gold standard was basically rock-solid as far as prices go. A loaf of bread was going to be worth x amount of gold and there is a finite amount of gold, so prices weren’t changing much.
So yes, there was a time when the dollar was solid. Everyone knew what it was worth because it was backed by something.
The Dollar is Printed to Fund the Government’s Whims
Along came the 20th century and we had things to do, debt to accrue.
The first devaluation occurred with the creation of the Fed and the sale of bonds that were only 40% backed by gold.
The second happened when FDR took us off of the gold standard for a period during the Great Depression in order to help the economy that was on life support.
Lastly, Nixon took the country completely off of the gold standard, placing us at the mercy of the Federal Reserve.
So, to break this down – if the country needs better roads, we go to the printer and print some “bennies” to pay the construction company with the crisp, new money.
Long gone are the days of making sure there’s something there to back our money up. We’ve got kids playing with the printer.
“Capitalism” is Now a Lie
Since the financial crisis of 2008, the Fed has been doing something called “quantitative easing” to our economy.
QE, in layman’s terms, is basically printing money and buying stuff with it in order to artificially stimulate the economy.
We’ve had 4 rounds of this jazz. So far.
QE1 started in December of 2008 when the Fed pumped 800 Billion into the market and bought “bank debt, U.S. Treasury notes, and mortgage-backed securities”.(2)
Since QE1 there have been 3 other QEs. 12 trillion dollars have been created out of thin air and pumped into the economy.
The issue with quantitative easing is that, as the Japanese economy shows (4), you have to keep QE-ing in order to continue the facade of an economy that is moving.
Even after printing a ton of money and essentially devaluing our currency, our economy is still looking shaky at best. Go figure. QE5 coming up!
The US Government is Hoodwinking the World Economy
As if it wasn’t enough that the government plays fast and loose with our money, they’re running perhaps the biggest worldwide scam in history.
As Rick Rule puts it, “the most attractive free trading lie is the US dollar”.
We “buy” stuff – like coffee, cars, shoes, etc. from other countries, and they take payment in dollars. Yeah, people give us stuff for the paper we print “willy-nilly”. Sounds like a pretty good deal for the US.
As Americans, we’re basically crossing our fingers that the countries we deal with don’t find a better way to transact with us. If there’s a reckoning for the promulgation of this lie, it’s not going to be pretty.
So here we are, with a currency that continues a spiral of devaluation.
The problem is that breaking that spiral will be extremely painful. I don’t see a feasible way to just “switch” back to the gold standard or anything of the sort.
In our podcast, Austin says that a global reset based on each country’s assets could be on the table. Whichever way we go, we need to be mindful of the silly practices that got us here and hope that we learn from our mistakes.
*David for Tico+Tina
1 – Illustrated Gold Standard Timeline
2 – Quantitative easing explained
3 – $12 trillion of QE and the lowest rates in 5,000 years … for this?
4 – The Fed’s Tragic Plan For Long Term Rates Revealed – Mike Maloney
5 – Fall Of Empires: Rome vs USA (Hidden Secrets Of Money Ep 9)