The Rise and Fall of the U.S. Dollar

The U.S. Dollar has experienced a drastic decline in purchasing power over the last hundred years. Paper currencies have been and always will be vulnerable to instability throughout the global markets. You can be sure that the future will bring even more major market fluctuation, political uncertainty, frivolous government spending, and global pandemics.

The U.S. Dollar has been the fiat currency of the world since the end of World War II. Fiat currencies like the U.S. Dollar do not receive backing by any physical assets, but instead derive their value solely from the credit of the issuing government and that governments promise to pay.

Therefore, paper currencies are always vulnerable to global market instability, political uncertainty, and excessive government spending, and quantitative easing programs. There can be no doubt in anyone’s mind that the value of the U.S. Dollar will continue to lose its buying power over time.

It’s no secret that $1 now will get you less than it would 100 years ago, but just how much has the purchasing power of the U.S. Dollar decreased over the years?
  • $100 in 1913 would only be worth about $3.87 today.
  • While the purchasing power of the dollar has gone up and down since 1913, it has never surpassed the purchasing power it had in 1913.
  • The purchasing power of U.S. citizens has always topped the charts, but that could be changing in the future.

Though there are outliers, the purchasing power of the dollar has steadily decreased since 1913.

This is due to inflation and the continued increase of the Consumer Price Index over the years. As demonstrated by the data, dollar purchasing power has a negative correlation with the CPI. As the CPI increases, the purchasing power of the dollar decreases over time.

Inflation is the constant rise in the prices of consumer goods and services over the years. As these prices continue to increase, the total amount of goods and services that can be purchased with a single dollar continues to decrease.

Debt in America exceeds $28 trillion now or 137% of the economy

As troubling as that number is, it radically undercounts the true depth of America’s debt-fueled woes. Obligations for which the US is already on the hook – entitlement programs, federal employee and veteran benefits, etc. – means the country really owes more than $155 trillion, or nearly 800% of GDP.

In 1971, the Bretton Woods system was abandoned by President Richard Nixon. Though Nixon’s decision was initially to temporarily suspend the dollar’s gold convertibility, the US never returned to a metallic or bimetallic standard.

Consequently, the US economy was transformed from a metal-backed regime into a debt-backed regime. In June 2020, the United states created approximately the same amount of debt as it did during the first two centuries of its existence. From 1776 to 1976, the US issued debt in the amount of a little over $1 trillion.

Certainly, Congress will find a way to sharply reduce those obligations at some point in the future, to the detriment of beneficiaries. In the meantime, however, Uncle Sam will rely on his buddies inside Treasury to do his bidding by keeping interest rates near 0% while stoking inflation by printing oodles of dollars.

Years ago, retirement income was often pictured as a three-legged stool.

One leg was Social Security benefits, another was employer pensions, and the third was savings. A lot has changed since those days. Many of us no longer have traditional employer pensions, leaving us with a wobbly, two-legged stool. What’s more, because of today’s rising life expectancy, those two legs may have to support us for a much longer period of time – three decades or more in many cases.

One thing hasn’t changed, however. The question of how much retirement income is “enough” doesn’t lend itself to a one-size-fits-all answer. It depends on many factors, most notably your future retirement expenses, to the extent that you can predict them.

The Bottom Line

Clearly, planning for retirement is not something that you do shortly before you stop working. Rather, it’s a lifelong process. Throughout your working years, your planning will undergo a series of stages in which you will evaluate your progress and targets and make decisions to ensure you reach them.

Gold & Silver Are the Solutions

Trade wars, currency manipulation, a debt bubble, or a recession will hurt the value of paper money. Investing in gold and silver could give investors the protection they will need to survive and even thrive during difficult times. Precious metals like gold and silver carry no counter-party risk, cannot be printed at will by any central bank or government, and are real property that cannot be diluted.

Gold and silver have withstood the test of time for thousands of years and have maintained their value in the face of inflation, market volatility, political turmoil, currency devaluation, threats of terrorism, global pandemics, and war.

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