The Zero-Value Dollar and It’s Inevitable Destiny
It is difficult to miss the news and commentaries of late about the U.S. dollar's fall in value, the popularity and rise in gold value, whether or not we are making purchases, and the ever vigilant watch of securities (stocks). What we Americans do not understand is their relationship in our free market system. We might know they are related, but not why. Since the removal of the gold standard, two verities exist with respect to our economy. First, without growth, there is death; and, secondly, only in America do you save money by spending it. Both are unfortunate truths not intended by the Founders.
The latter is funny only in respect to checkout clerks who tell you that you saved $10 without reminding you that you spent $100 to do it. A video simulation, called "The Day the Dollar Died," illustrates what its producers believe will happen to the dollar in just a few short years from obsessive compulsive spending that leads to printing money.
The problem with the video is that many people will shrug it off as "gloom & doom" fortune telling. Others will feel overwhelmed and ignore it to preserve sanity. Education will help with both reactions. Not only is it not "gloom and doom", it is, in actuality, the end effect of removing a base value (gold & silver standard) from the dollar bill—especially when the point of removing it was to allow continued spending beyond means to pay.
The dollar bill holds no value in its own right. What Americans need to understand is that commodities are the only way to provide value to the dollar. Simplified: take all the goods and services traded with a dollar, divide that amount by the number of dollars in existence and you have the average value of the dollar. But there is a problem that interferes with that value: Printing money. Printing money increases the number of dollars against goods and services sold, which reduces the dollar’s worth below its actual market value. This causes inflation.
Under the gold standard, money cannot simply be printed. There is only so much gold. And therefore, only a set number of bills could be produced unless more gold was also produced. But remove the value, and printing money becomes not only possible, but also convenient. The gold standard was removed in the first place so the federal government could continue spending outside the value of the dollar—primarily by borrowing, rather than reining in their budgets.
Double Jeopardy
Because the bill has no value if nothing is purchased, the only way for a saved bill to be worth something is through spending it rather than any ability to build equity through the value of gold. Borrowing against savings accounts allows that money to circulate back through the markets by spending and the saver receives a portion of the interest on the borrowers’ loan in return. If money in saving accounts are not moved—if it sits idle—the money could not produce value. There must be borrowers and constant spending in order for our saving system to work. If it doesn’t grow, it dies. There is no such thing as simply maintaining. It is why savings assets do not stay idle in banks. Your money in a savings account is actually invested by your institution in order to preserve and, hopefully, increase the dollar value. Your money is also “sold” to other entities that provide equity assets that, under certain market conditions, might make more money than simply investing in securities, with a small portion of the gain, either way, returned to the saver in compensation for the use of their money for something tangible. Hence, in America, "you only save money by spending it."
But the day you pull your money out of a savings plan it also pulls the investment. It is like "calling" a loan. Hence, the reason the federal government tries to maintain balance between the loan rate and flow of spending through the Federal Reserve and legislation monitoring banks. They are trying to prevent the inevitable breakdown of the system should too many people stop the constant shuffle of money cycling through the system.
The flip side of divesting comes when the dollar value drops through constant printing. Businesses suffer a bleed, usually a small, chronic one, that is out of their own control. They subsequently could go out of business through the fault of the government that prints money to solve its budget problems without realizing it. Homes also feel the pinch over time.
Here is what happens: The Federal government borrows money—a lot of it—then prints money in order to reduce their debt ratio. Basically, the point is to devalue Federal loans with the intention of giving them more money to “play” with. But they have also devalued our private money by it. Congress appears blameless in the dollar devaluation, in their estimation. Yet, in reality the process is tantamount to a very expensive tax increase—the very action they claim, heroically, to be avoiding—because more of your money is now needed for the same products (goods and services), and savings than prior to the government printing more bills. You and I must work harder to be able to acquire our same needs. In addition, the debt still needs repaying. Worst of all is Congress’ complete lack of realizing that because they devalued the dollar more (from printing), the government is also decreasing its own ability to pay for the same services it provided to the public prior to printing. Thus, they must borrow more, then print more, then borrow, print, and on and on. Through this vicious cycle we are able to see how inflation is not just created but keeps increasing. The deceptive game by Congress and the Fed is nothing more than the squirrel chasing its own tail. It’s constant use will lead to hyperinflation. —The scenario in the video.
The saddest indictment is not even bad economics, poor budgeting skills in Congress, nor a lack of foresight in pushing off debt for the future. It is the federal government’s willingness to sacrifice the Constitution, which requires the Federal government to manage, not eliminate, the gold standard. Were that still in place, the dollar would have a set stability of its own. Purchases would be on a need basis rather than by compulsion, savings would be actual equity in a commodity rather than a gamble against others to spend beyond their means. The states would not be in violation of the Constitution that specifically mandates repayment of debts with gold or silver. The gold standard was a control for government spending as well: Spend all your dollars, you are done spending unless you borrow. Reach you maximum ability to pay debt? You are done borrowing. Despite how many irresponsible legislators there are, most would avoid this situation to avoid the public ridicule and humiliation had they not been allowed to circumvent the system by destroying the base value of the dollar. The present system allows them to hide their actions behind a delay in consequences that are felt long after they have left the scene.
Symptoms of Monetary Illness and Coming Death
Over time, the build up of debt becomes insurmountable. One of the tell tale signs of rapid depreciation of the dollar is when the very commodity that used to back the dollar, gold, starts rising in value. Eventually silver rises as well. This is a strong indicator of the weak dollar and the lack of faith—some say foresight—of those who are in a position to compensate for the devaluation of the dollar by hording gold.
The higher the demand and subsequent value of gold, the stronger an indicator it becomes of the dollar’s devaluation. This is why we should watch the gold value, stocks (a primary engine of the spending and borrowing cycle), the inflation index, and the gross national product (GNP)—or the amount of “stuff” we buy. This quadrille of American economics should be learned and understood by regular citizens, as it will tell them volumes about what is going on in Congress.
The GNP is most important because when printing causes inflation, the natural counter offense is for consumers to reign in spending. This reduces the value of goods and services against the dollar, and a raise in the latter’s value because the demand for goods and services declines. But this situation causes recessions and depressions. Americans by in large, don’t understand that a recession isn’t normally caused by some consumer error, but is the byproduct of a reaction caused by the government’s printing of money that devalued the dollar in the first place.
This is where the scenario in the video becomes real time. The solution is twofold: Abandon this zero-value economic model and reinstate the gold standard. The other solution, even more important than the first, irrespective of Constitutional mandates, is force Congress and the President to stop spending obscenely. The combination of spending within budget limits and terminating printing of money is as solid a solution as the gold and silver to back it.
The World Economy in U.S Hands
To show just how far reaching this scenario is we need to understand that all other currencies depend on the value of the U.S. dollar for their value. Other currencies do not drop in value as a copycat of America because they have warm fuzzies about us. Their money is directly tied to ours. If the U.S. dollar collapses, so go all other currencies—unless other nations are wise to the situation and divest interest in the dollar. When you read of countries, such as China, scrutinizing our government’s spending habits, (read: printing of money to cover debts) you now know why. Their money is directly invested in our system which would naturally bring concern over their monetary system as well. This is also the reason current federal law allows goods and services to be bought with any currency you care to accept. Bartering goods and services is also allowed and considered currency.
Every American should be mindful of what they can do, independent of the government, as a solution and hedge against monetary collapse. The reality is that there are many—probably the majority—who cannot invest in gold and silver. In an economic/monetary collapse, gold and silver, as currency, would only circulate among those who already have it. Those without would have no means to purchase needs. I suggest a more practical solution that can provide initial relief to all: Invest in commodities that have no bearing on a monetary system. A supply of food, clothing, and other basic needs that can be stored might arguably be the most important countermeasure to a monetary collapse through the reorganization phase.
Albeit unlikely, the prevention of the problem in the first place would be more powerful: Elect only those who are committed to spending within the government's means, and observe and defend the Constitution, in part by reversing the Act that removed the gold standard. That goes directly to the intent of the general welfare clause, which they swore to protect.
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