Whatever has happened to dollar movies?
No matter your age, at this point it’s pretty easy to play “remember when” with your dollar. If you are in your 40s you may remember when you could get an entire large jar of Skippy Peanut Butter for only a dollar. Today, that same jar of Peanut Butter at Walmart will cost you $5.58. If you are in your 50s you probably remember when you could run to the grocery store and pick up 5 boxes of Kraft Mac N Cheese for only a dollar. Today, that same 5-pack runs right around $4.99. If you were born in the 60s, then you or your parents could swing by McDonalds and grab a Big Mac for only 45 cents. Now, the famous McDonalds sandwich will set you back $4.99. I could continue on and on with this trip down memory lane, but essentially the days of going to the dollar theater are over. The Mighty US Dollar simply will not get you the same bang for your buck as it did back in the good ol’ days.
The question becomes, why are we seeing such a decrease in purchasing power for the dollar?
In 1913 the Federal Reserve Act was passed, which gave the Federal Reserve the ability to manage the money supply to maintain and ensure economic stability in the nation. Back in 1913 you could get 30 Hershey Bars for the cost of $1. During the Great Depression the US Economy experienced deflation, which actually increased the purchasing power of the dollar. In 1944, the Fed fixed the US dollar to gold at the rate of $35/oz, and the dollar became the world’s reserve currency under the Bretton Woods agreement.
However, WWII took its toll on the US Economy and the Fed began increasing the monetary supply in the US to help offset the debts incurred during the War. In the following years, the same problem occurred as the US entered the Korean War and the Vietnam war. In the 1960s, there were so many dollars in circulation that we were no longer able to back all the dollars by physical gold. As a result, in 1971, President Nixon moved the dollar away from the gold standard allowing it to become a floating currency. This meant that there was no longer a limit to the amount of currency that could be introduced into the monetary system.
Think of it another way - our country transitioned from spending a debit card to a credit card. We no longer have to worry about what's actually in the bank to spend.
If you examine the effects of leaving the gold standard you can see that in the past 20 years, the money supply being circulated has increased from $4.6 trillion in 2000 to $19.5 trillion in 2020. An increase of that amount is completely unprecedented in this country. In fact, the Covid-19 pandemic of 2020 was responsible for the creation of 20% of today’s monetary supply, a total of $3.4 trillion dollars.
Unfortunately, the outcome of a widespread increase in the monetary supply can be catastrophic for an economy. If you look at the policies of nations like Venezuela, you can see that unfettered economic stimulus can have devastating consequences on inflation and the economy at large.
Long term, the economy can’t entertain such a widespread increase in the monetary supply and not encounter significant inflationary consequences in the future. As an investor the only sure way to safe guard your portfolio is to place a hedge around it with physical metals - we call that Wealth Insurance. As the purchasing power of the dollar decreases, this impact will trickle down onto all investments tied to the value of the dollar. The only exception to this, is gold and silver, which retain their value in the face of widespread inflation. Today, the price for physical metals remains relatively low considering the warning signs we are seeing regarding inflation. However, the supply of these metals is tenuous at best and it is becoming increasingly difficult to get your hands on physical metal as demand increases.
To protect your client's wealth, you need to jump on the gold and silver wagon, while you still can and while supplies last. It’s really not a matter of if we experience inflation, but when we experience it.