Some say the wheels of justice turn slowly. Sometimes, the wheels of common sense can seem to turn even slower. Thankfully for us all, however, those wheels are beginning to turn. There is now legislation pending, recently introduced in Congress (H.R. 5404), that would redefine the U.S. Dollar as a fixed amount of gold, instead of as a floating fiat currency. The impact of this legislation would be “yuge”, for the average American. The reasons this legislation is being promoted will be familiar to many of our subscribers, but we will discuss some of the reasons briefly in turn. Before you get discouraged, and say “...there is little hope the legislation will ever pass”, I have some great news. The effects of this legislation can be realized by every American who wants it to become law, even without the bill being approved by the Senate, or signed by the President. More on that in a minute.
Congressional research has uncovered and revealed a list of “findings”, which many who work in the precious metals arena have been talking about for years. It has now been recorded in the halls of Congress, that the U.S. Dollar has lost 96% of its purchasing power since the creation of the Federal Reserve in 1913. According to the statutes that apply to the operations of the Federal Reserve, one of their major goals is to “maintain stable prices”. The performance of the Dollar, however, is a damning indictment of the ability of the Fed to follow its' own guidelines. Approximately 1/3 of the purchasing power of the Dollar has vanished, since the year 2000 alone. The tendency seems ready to continue, pending the outcome of this legislation.
It is not only the U.S. Dollar that has been affected by this devaluation, compared to gold. The chart graphic below shows that many currencies have behaved in similar fashion over the last 15 years. As the bottom row indicates, the national currencies listed have lost from 7.5% to 11.7% (avg per year) value in purchasing power, compared to gold. (The data for the chart is as of 4/13/2018):
Another related Congressional finding mentions that if the Fed is successful at attaining and maintaining their stated 2% inflation goal, the U.S. Dollar will lose half of its purchasing power every generation. This makes the best-laid financial and legacy plans ineffective, when it comes to providing for our families' financial futures. Perhaps losing 50% of purchasing power fits within their definition of “stable prices”, but it doesn't work for the average American family. You can read more about the pending legislation, and how it would impact us.
In the same way that Americans have been fleeing high-tax states, many industries and manufacturers have been fleeing the U.S., to set up manufacturing in a non-Dollar economy. Companies don't want to be using Dollars to purchase materials, due to the devaluation that has been occurring. A loss of 50% purchasing power, in the real world, means you need twice as many Dollars to purchase the same thing. If another currency only drops 25%, you can better yourself by moving your factory there. Many have. While some say it has been due to the “corporate tax rate”, it has also been a result of the continuously devalued Dollar.
The Fluctuating Dollar
It is not only US manufacturers that have felt the pain of the fluctuating Dollar. It is also the international community, seeking to take evasive action to protect themselves. This week, the President of Turkey proposed that international loans and other funding commitments be paid in gold, instead of in U.S. Dollars. This is merely the latest in a groundswell of complaints by the rest of the world, against having to constantly adjust their reserve of Dollars on hand, because of fluctuations in the value of fiat currencies. So with pressure from both outside and inside the United States, to reintroduce gold into the commerce and trading mechanisms, it is looking more possible than ever in modern history, that gold will play a more integral role in currency and commerce.
Backing the Dollar with a Precious Metal
Such a law to tie the Dollar to precious metals is not without precedent. In the 18th Century, Congress passed a measure defining the Dollar as equal to 371.25 grains of Silver. The law was never superseded, but has long been ignored. As an example of how this can be effective, let us consider the minimum wage. In 1964, it was $1.25 per hour. If the value of the Dollar was stable, the minimum wage would never have to change. Instead, there is a movement today to raise the minimum wage to $15.00 per hour, to adjust for the decreased purchasing power of the Dollar today. If quarters were still made of silver, as in 1964, that $1.25 in silver quarters would be worth about $17.00 in today's money, which illustrates how precious metals preserve their purchasing power over time.
Gold is similarly effective. In 1964, 100 ounces of gold was worth $3,500, which would purchase 2 new cars. Today, $3,500 would only buy 1 used car, that needed work to be road ready. But 100 ounces of gold today, worth $134,000 in todays money, would buy 2 new luxury cars.
Earlier, we said that the effects of this bill becoming law can be realized by every American who likes it, even if it is not ratified by the Senate, or signed by the President. For this to happen, all someone has to do is exchange some of your paper Dollars for gold (or silver). You have then exchanged certain devaluation for proven protection. Even when stock markets are climbing, they often do not offer the same level of purchasing-power-protection as precious metals, as we wrote about extensively.
I have reached out to our local Congressman's office, to receive his input on how likely this pending legislation is to be put into law. Based on the response received, the best course of action would be to exchange some fiat currency for gold now. This will protect your financial future in the event the bill is defeated, and will prepare you for the ascent of gold prices should the bill become law. You can do your part by writing your Congressman/woman to support the bill, and to put your family's financial future on your very own gold standard, whether the bill passes or not.