Purchasing Power vs. Inflation

Since the creation of the Federal Reserve in 1913, the US Dollar has lost purchasing power. By the year 2013, the US Dollar had lost 95%. Rampant inflation continued over the next five years, and the percentage rose to 98%. This equates to a 60% loss in just the those few years.

Economist calculate these figures by determining the value of the currency against the amount of goods and services it can buy. It can then be seen that since the creation of the Federal Reserve in 1913, the US Dollar has lost 98% of its purchasing power. This cycle cannot be reversed. For every dollar that is in existence there is another dollar not in existence that is owed as interest.

The currency supply is largely created by our bank’s fractional reserve lending system as well as the Federal Reserve and the US Treasury exchanging debt to create currency. The creation or expansion of the money supply is called inflation. Inflation is a large contributor to the loss of purchasing power. As the money supply grows, so does the prices of goods and services to meet the flow of currency. With all things being equal, inflation diminishes the amount of goods or services one can purchase because of the rising prices.

Sadly, the U.S. has been exporting it’s inflation by printing money and exchanging it overseas for goods. We as citizens, do not see that increase in money supply on our shores, which keeps our prices fairly stable. However, when this currency returns to our shores in exchange for goods or otherwise, runaway inflation will begin, and prices will soar.

Another factor that makes exported inflation a frightening reality is the that the U.S. Dollar has lost its world’s reserve currency status. Country are trading around the U.S. dollar, creating no more need for it in international trade that does not include the U.S. This ties in the petro-yuan, the Chinese oil exchange that allows countries to sell oil not only for fiat currency but physical gold as well. As countries begin navigating their way around the dollar U.S. trade will boom as countries spend their stored dollar for our goods to deplete their holdings of a currency they no longer have to hold. Prices will then skyrocket to meet that level of inflation.

Historically, when the price of goods, specifically food reaches a percentage of household income, near 40%, populations begin to up rise and even have over-thrown governments. This was a major cause behind the revolutionary war. When the ratio of income to food reaches a danger point and all bets are off. We have seen this time and time again and have even seen it recently in Egypt. How much can the populaces withstand?

Money is supposed to be a store of value, the U.S. Dollar is no longer a store of value it is just paper, backed by nothing. When the dominos fall the dollar will lose far more than it already has. The Federal Reserve and the US Treasury cannot print gold or silver and therefore cannot control it. Gold and silver have always and will continue to do an accounting of the currency supply even when it happens on a global scalelike we see now. Be sure that your clients’ back their portfolio with gold and silver not only as a market hedge, but also, a hedge against the dollar and overall, wealth insurance.