DOLLAR VALUE

The recent TEA (Taxed enough already) parties around the nation culminating with one in Washington, DC showed that most Americans are sick of the way the Federal government is continuing to take more and more of our hard earned income to pay for government expenditures (or at least use it for down payments on more financed borrowing). Unfortunately, what most Americans don’t realize is that we are mad about only the part of the iceberg above water, while 90% more lurks underneath the deep.
Fed Chairman Ben Bernanke advises us that we have probably seen the worst of the “recession”, and that things are looking up. From a purely “nominal” point of view, he is probably right. We may see GDP growth in this quarter and the next. Unemployment may be close to peaking, with gradual improvement into the distant future. But at what cost?
Governments can play with money supply, and they can play with interest rates. This is the method just recently used to prevent the US sky from falling in, with repercussions heard around the world. They can even play with the values of previous metals, by selling from their own stock, or even leasing their own stock to others. But they cannot really totally control the value of precious metals as compared to the value of paper money.
Incidentally, you should know that the US, richest nation in the world after World War II, held 20,000 metric tons of gold, and it was the backing for our paper money. Because we agreed in 1944, at an international conference in Bretton Woods, New Hampshire; to redeem dollars for gold to anybody in the world, the world considered the US dollar king of the hill. By the time LBJ decided to win the war in Viet Nam, while he won the battle against domestic poverty at the same time; the world decided they would rather hold gold than US dollars. They required us to give them 12,000 metric tons of our gold, leaving us only 8,000 metric tons. And history records LBJ lost both wars. Finally, Richard Nixon had to tell the world we could no longer redeem dollars with gold, lest we give away all we held, and we went off the gold standard.
Now our dollar is worth only what the rest of the world believes it is worth. Because Nixon made a deal with Saudi Arabia to require all oil sales to be paid for in US dollars, for 30 years, the dollar held up pretty well from the outside view, as compared to other world currencies. But when Nixon refused to redeem dollars, he also began to allow private ownership of gold, which FDR had confiscated during the depression, and private ownership led to real market prices.
Since the depths of the depression in 1932, the dollar has lost 98% of its purchasing power. Put another way, two pennies in the depression would buy the equivalent of what one dollar buys today. You laugh at your grandpa for making $2,000 per year, but if you are not making over $100,000 per year, he was better off than you are! At the same time, gold soared in value by 4,300 per cent. Put another way, $100,000 cash in 1932 is really worth $2,000 today. $100,000 gold in 1932 is now worth well over $4.3 million in paper dollars.
The dollar index compares the dollar to a basket of other world currencies. The US dollar is now at 76 cents, just 5 points away from its all time low, and headed lower. The Fed is now buying US bonds, which is the equivalent of you loaning yourself money. How long can it last? This is why I still call for a march on Washington for July 4, 2010.We absolutely must save our Republic.