The descent of the US dollar from honest, sound money into weaponized political money

The descent of the US dollar from honest, sound money into weaponized political money. By Matthew Cortez.

As the US dollar comes undone in the next few years, this history will become more and more relevant:

On April 5, 1933, U.S. President Franklin Delano Roosevelt required all persons holding more than five ounces of gold to deliver their “gold coin, gold bullion, and gold certificates, now owned by them to a Federal Reserve Bank, branch or agency, or to any member bank of the Federal Reserve System.”

By outlawing the so-called “hoarding” of gold, Roosevelt intended to destroy gold as an everyday currency, transferring the purchasing power of gold to the U.S. government.

In exchange for Americans’ gold, the government gave them Federal Reserve Notes at the exchange rate of $20 per ounce.

Soon thereafter, FDR devalued the Federal Reserve Note by 40% by resetting the exchange rate to $35, fleecing citizens who complied with the order.

Myths persist today about the likelihood of another gold nationalization. Given that the U.S. dollar is no longer backed by gold, it seems highly unlikely.

In 1933, the U.S. government was required to have gold in order to expand the volume of currency in circulation. Those days have long since passed, as there is no longer any (non-political) standard tied to the increase of America’s money supply.

In 1965, President Johnson passed the Coinage Act, removing silver from coins and replacing them with clad coins, a mixture of nickel and copper.

And finally, in 1971, President Nixon infamously ditched the Bretton Woods agreement and ended the ability of foreign central banks to convert their dollars back into gold at a fixed rate.

Removing gold backing from our paper currency completed the transition of a monetary system rooted in sound money to a purely fiat system, and this move sparked an explosion of debt and inflation. …

From 1971 the US (and world) money supply was no longer constrained by a connection to gold. It could grow indefinitely, infinitely even. Not coincidentally, the 1970s saw a lot of inflation.

Then the CPI definition was changed and the Fed became more responsible (20% interest rates in 1980), and from 1982 to 2008 there was high money supply growth with negligible CPI increases — and the world’s biggest asset bubble ever. By 2008 the world had run out of unencumbered collateral and interest payments had risen to 16% of GDP, curbing money supply growth. So then governments stepped in and emergency measures were put in-place to prevent collapse — and the asset bubble grew even more, on the back of zero interest rates.

Now in 2022 that game is faltering. Yes, the end really is nigh for the current system of money and debt. Digital money, controlled by the government, is just around the corner.

More and more people believe our once-stable medium of exchange to be a ticking time-bomb, fueled by inflationary policies wrought at the federal level. …

For the past 100 years, we were assured that those in charge had the necessary tools to keep inflation from becoming a problem. All the while, the currency’s purchasing power has fallen by more than 98%.

Today, inflation sits at a 40-year high of 8.3%, according to the latest Consumer Price Index reading. The true inflation rate is likely much higher.

Meanwhile, Bloomberg, one of the nation’s largest financial media conglomerates, recently published an article encouraging Americans to eat more lentils while foregoing medical needs for their pets as a way to combat the ravages of inflation.

In 2020, in classic “cure becomes worse than the disease” fashion, the Federal Reserve created $4 trillion in new currency units.

Since then, the Fed has continued to create money out of thin air to help finance the deficit, including part of President Biden’s latest budget proposal (estimated to cost around $5.8 trillion).

All told, 40% of the dollars currently in circulation were created in the past two years.

US true-money supply change

As Russia and countries worldwide continue to stockpile gold, and devise alternatives to trading in U.S. dollars, America should reexamine sound money principles.

It’s clear to see that America’s money unit has been dramatically losing value over time. Will the inflation problem become so obvious that Americans clamor to jettison the fiat currency altogether?

The big question is: will the injection of all that covid money only cause transitory inflation, now that the injection is over, or will inflationary expectations change, causing a wage-price spiral?

In addition, the central banks need to run a 10% hidden inflation rate to whittle away the real value of the debts of their governments and prevent the economy going stagnant with too many debts (like Japan since the 1990s). The appeal of a digital currency where a government can simply dictate everyone’s economic behavior is going to become irresistible to the economic illiterates on the left.