Destiny of the Dollar

It is critical that we understand the basic economic mechanisms that dictate our daily lives so that we understand what is really going on around us, and why we are standing on a house of cards.  Let's start out with some very basic definitions.  Wealth is the accumulated value of the sum of your time and freedom.  In other words, when you decide to sacrifice some of your time and/or freedom to benefit others in society, you are rewarded with money, which you can then use to purchase time and freedom from others, i.e. goods or services.  Those goods were produced through the expenditure of someone's time to obtain or refine resources.  For example, mining ore takes someone's time.  Refining that ore into stronger materials takes someone else's time.  Refining that into something useful, such as a sword, takes yet more time and skills.  When you trade your money for a good such as a sword, you are paying for all of the time that went into the collection and refinement of the materials that went into that good.  Some people earn more money for their time than others, based on their skills, which is another way of saying that what someone is paid is based on their marketable skills, or their monetary value to society which is based on what they can produce for others.  

Money, then, must be a store of value as well as a medium of exchange and a unit of account, and it also must be portable, durable, divisible, and fungible (identical to one another).  For over 5000 years, gold and silver have served as the most reliable forms of money on the planet, because they meet all of those requirements, and they have consistently maintained the same purchasing power throughout millennia.  By contrast, today what we typically use in the United States is the US dollar, which is in fact no longer money, but rather fiat currency.  The difference is that this fiat currency does not serve as a reliable store of value, because the government can (and does) depreciate it's value systematically as a form of taxation called inflation- transferring it's 'value' from one group to another.  The term fiat means official, and in the US, federal legal tender laws require that each of us accept the US dollar "for all debts, public and private" as it states on the dollar paper currency.  If not for these legal tender laws, and generations of conditioning of the public, when one tried to pass a piece of paper backed by absolutely nothing to another for goods of services, the recipient would laugh and refuse to accept such a worthless piece of paper as payment.  But we have been conditioned (and forced) to accept these worthless pieces of paper as if they had real value.  

This was not always the case.  Join me in a brief trip through history to understand the context of our financial history.  When the United States was founded, the founding fathers had a deep mistrust of fiat currencies as they had just experienced wild inflation throughout the revolutionary war (i.e. the Continental dollar) and after, as a number of states printed currency that was not backed by money and thus became worthless.  Thus, when writing the US Constitution, the founding fathers worded it carefully, granting Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin" and further they said that "No State shall... coin Money; emit Bills of Credit; or make any Thing but gold and silver Coin a Tender in Payment of Debts."  In other words, the federal government was to coin money, in the form of gold and silver, and states were not allowed to allow anything but gold and silver to be used for the payment of debts.  Their intention was clearly that the United States was thenceforth to be based on principles of sound money which are based on gold and silver, and never again to be subjected to the perils of fiat currencies.    Unfortunately, corrupt politicians and bankers have fought against those principles of sound money ever since, unable to resist the power inherent in controlling and printing unlimited currency for their own desires and those of their friends.  

The insidious financial institutions known as central banks have reared their ugly heads throughout our history.  Secretary of the Treasury Alexander Hamilton fought for the creation of a national bank and in 1791, despite bitter opposition by many founding fathers including Thomas Jefferson, Congress chartered the 'First Bank of the United States' even though it was a private bank owned partially by foreigners.  In 1811 it's charter expired and was not renewed by Congress.  After 5 years, and the War of 1812 (and associated debt and the temptation to 'monetize' it) Congress chartered the Second Bank of the United States, again, owned largely by foreign investors.  President Andrew Jackson, an advocate for hard money, made it his mission and primary platform to destroy the central bank, and vetoed the renewal of it's charter in 1834.  Nicholas Biddle, president of the Second Bank of the United States even said "Nothing but widespread suffering will produce any effect on Congress" as he tried to intentionally wreck the economy in an effort to put pressure on Congress to override Jackson's veto of the bank's recharter, but ultimately Jackson was victorious and the bank's charter expired in 1837.  

Finally, in 1913, a small group of banking elites met secretly on Jekyll Island and devised a plan to convince Congress and President Woodrow Wilson to create an institution called the Federal Reserve Bank.  Of course, while it was sold to Congress as a plan for the 'public good' to 'stabilize banking' in reality, the Federal Reserve Bank is nothing more than another privately owned central bank that has the ability to create currency at will, on it's own, and to give it to whoever it likes.  Most people are fooled by the facade and slight of hand whereby the Federal Reserve acts as if it's an agency of the federal government, and acts as if it's under the control of the public through Congress and the President but in fact, the bank is private and can do what it wants with it's Federal Reserve Notes (that we call US dollars).  At it's core, the Federal Reserve Bank is a cabal of bankers with special government treatment; the government agreed to enforce it's rules on all banks in the US, and implemented legal tender laws which force us to accept Federal Reserve Notes as if they were money.  Since the Constitution prohibits Congress from creating a fiat currency, Congress essentially appointed this private bank to do it for them, thus bypassing the Constitutional restraint on government.  When the federal government wants money, all it has to do is create a treasury bill (or IOU - out of thin air) that is then purchased by the Federal Reserve in exchange for Federal Reserve Notes, which are also created out of thin air.  It's a massive shell game designed to dupe Americans who are oblivious to this process.  Every single time this happens, the value of dollars that you hold are devalued.  Since 1913, when the Federal Reserve was created, the US dollar has lost 98% of it's value.  Think about that.  In reality, what has happened is that the Federal Reserve, in cahoots with the federal government, has stolen 98% of our private wealth from 1913 to today, and given it to their friends.  Some of this redistribution can be seen in the form of government payouts (that occur after the treasury bill for dollar swap), but much of it we don't even see because the Federal Reserve can create currency (paper or electronically) at will and distribute it to whomever it wants, without any approval process or even oversight.  We know this has happened many times, even to foreign banks and governments.  You can also think of this process as legalized counterfeiting.  If we were to do it, we'd go to jail, but when the government and it's friends do it, it's magically legal.

During all of this, there was one annoying restraint that the central banks had to deal with, at least on the surface, and that was that these currencies - including the US dollar (and even state bank notes) were backed, to one degree or another, by gold and silver- real money.  If this wasn't the case, everyone would understand the counterfeiting that was going on, and realize that these fiat currencies in reality have no value whatsoever.  Until 1933, you could bring your US dollar to the US Treasury and exchange these dollars for actual gold (or in the case of Silver Certificates, silver).  The Federal Reserve Act, in order to get passed, actually required Federal Reserve Notes to be backed by 40% gold, in other words, 40% of the value of those dollars in existence needed to be backed up by gold held by the US Treasury.  By 1933, Franklin Roosevelt was elected President and he was determined to bring as much currency into existence as he needed to to fund all of the government programs and redistribution schemes he had dreamed of.  In 1917, Congress passed the Trading with the Enemy Act which gives the president the power to oversee or restrict any and all trade between the US and its enemies in times of war.  It was amended by Congress in 1933 by the Emergency Banking Relief Act which extended the scope of that act regarding 'hoarding gold' to apply to any 'declared emergency' and not just in times of war.  FDR then signed Executive Order 6102 which forbade the 'hoarding' of gold coin, bullion, and certificates within the continental US.  He required citizens to surrender, with few exceptions, all of their gold to the Federal Reserve in exchange for $20.67 per ounce within a month.  Once he confiscated all the gold, Congress passed the Gold Reserve Act of 1934 which then prohibited the Treasury from redeeming dollars for gold to citizens on demand, as had been done for decades, and the act also magically re-valued gold to $35 per ounce, now redeemable only by foreign governments, thus providing much more cushion for the Federal Reserve to crank out currency to fund all the federal programs and redistribution schemes FDR could could come up with.  In 1971, realizing that the Federal Reserve had created far more dollars than there was gold to back up, following redemption by West Germany, Switzerland, and France, of their dollars for gold, President Richard Nixon suspended the convertibility of the dollar into gold, and issued Executive Order 11615 which froze wages and prices for 90 days.  From this point on, there wasn't even a pretense that the dollar was backed by anything at all.  

According to Milton Friedman "the pieces of green paper have value because everybody thinks they have value" and that's it.  The problem is that, as Voltaire stated, "paper money eventually returns to its intrinsic value - zero."  Of the literally thousands upon thousands of fiat currencies throughout history, every single one has collapsed to zero, without exception.  Why would the US dollar be any exception to this rule?  Throughout history, the average life expectancy of a fiat currency is 27 years.  We are overdue, since 1971 was the time when the US dollar became a 100% fiat currency, without anything at all backing it.  And there is a reason we are overdue.  Our fiat currency, the US dollar, also happens to be the reserve currency of the world.  In other words, the dollar is used globally for financial transactions of nearly every kind.  Major exchanges such as OPEC use the dollar exclusively.  This is not because the dollar is more stable than other options, it's based on two things: 1. the fact that American military and political powers strongly encourage / coerce the use of the dollar around the world and 2. other major currencies and central banks have been inflating their fiat currencies to much the same degree as the Federal Reserve has been, and thus there are few alternatives, for now, but that is beginning to change.  When the masses of US dollars that are held around the world come home to roost as those around the world begin to realize the dollar's real worth, the music stops, and that's the end of the dollar as we know it.  The end game is hyperinflation, which is ultimately what occurs when the population suddenly comes to the realization that their fiat currency is indeed worthless.  People rush to obtain stuff- indeed, anything at all that might have real value, in exchange for their worthless currency, if they can find anyone to accept the currency.  Anyone actually willing to accept the currency will only accept what, only a day- or perhaps even an hour- before, would have been considered absurdly high prices.  That is the inevitable destiny of the US dollar.  It's not a question of if the dollar will collapse, but when it will happen.  How much longer can the music keep playing?

I hope this article has helped to explain the situation that we now find ourselves in, and how we can hedge against what will inevitably come next.  If your savings or investments are dependent upon the US dollar, I would encourage you to consider moving them to sound money.  And as always, have a reserve of supplies on hand such as food and water to help weather such an economic storm.  Just ask yourself the simple question "what do I need on hand to survive, if my dollars no longer buy things?"  If we cannot learn from history, we are condemned to repeat it.  For further reading I would strongly recommend The Creature from Jekyll Island by G. Edward Griffin, and the Hidden Secrets of Money Youtube series by Mike Maloney below: