DOLLAR DEMISE

Everything you own will ultimately depend on the value of the U.S. $ dollar. It is our future.

This is the 50th anniversary of the removal of gold as the support for the dollar. When President Nixon supposedly temporarily closed the gold exchange window in 1971, it started the long term decline of our currency. The value of a national currency is one of the main determinants of the destiny of a society. The Gold Standard was one of the only ways to stabilize it. Our future is quite vulnerable.

A brief history of commerce and trade: In the beginning, barter is the method of exchange, a cow for bushels of wheat. Then there may be IOU’s from individuals or entities depending on their trustworthiness or creditworthiness. At certain times, there have been banks that issued IOU’s that became a form of currency. Those banks used gold to support their notes. As a society coalesces, to accelerate trade and the collection of taxes, the government will issue currency as a monopoly. This will usually start as coins and then move to paper currency. However, at that point, people will not trust the paper money unless it can legally be exchanged for gold. That is the Gold Standard. The metal has evolved as valuable by many societies due to its natural physical and chemical properties. After this gold system has been in use for multiple demographic generations, the government will try to remove the underlying Gold Standard. Then the currency becomes fiat money, backed up only by a government pledge. This allows the government to avoid the constraints of fiscal accountability. The currency then starts to lose value until it becomes unbearable for the citizens. Crisis!! It can occur quickly or over longer periods of time depending on inflation or other political circumstances. Historically, ever fiat currency has failed.

Presently, there are misunderstandings about the dollar. Sometimes you will hear that the dollar is strong. To put that in perspective, all currencies in the world, except perhaps the Swiss franc, are losing value. So when they say the dollar is strong, that only means that the U.S. dollar is declining at a slower rate than the other currencies. Not quite as comforting?

It may also be said that the dollar is now, in a way, supported by oil. There is a certain truth to that as oil is a major commodity and almost all transactions must be done in U.S. dollars. However, that is due to the political history of the Middle East and special deals with Saudi Arabia. This along with America being the dominant economic power has allowed the dollar to be the reserve currency in the world. It gives America a lot of power. Geopolitics and in a small way cryptocurrency are a threat to that status.

In the big picture, no President, Treasury or Federal Reserve should have the sole authority to devalue our national currency. The consequences are far too important. What has evolved as permanent is terribly unfair and unjust to the citizens. Congress needs to present the issue, have open debate and pass legislation as to the status of our currency based on the Gold Standard. We deserve the truth. This is especially important now with increasing government debt and deficit. The future is at stake.

For disclosure, Testa Financial Management holds gold related investments.