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Most Americans Are Unaware Of Dollar Destruction

8 October 2009 No Comment

The inflation trade is heating up with gold hitting some recent highs (above $1040 as of today).  The bad part of this scenario is that the US dollar continues to lose value.  I found myself asking today why more Americans are not more upset about the continued loss of purchasing power that their money is experiencing in the name of “recovery”.

Lack Of A Visible Indicator

I started to think that perhaps one reason why more people are not aware or upset about the loss of value in the dollar is because maybe there isn’t a visible indicator.  For example, when someone owns stock in General Electric, they check the share price each day or each week and get upset when that prices moves towards zero.

Sure there are ETFs (i.e. the UUP) and other vehicles that track the dollar performance that could be used for this, but how many average Americans pay attention to the UUP?  Way less than those that follow GE.

To better illustrate what I’m talking about, imagine that you assigned the U.S. dollar an arbitrary value of 100 almost 100 years ago.  Since the dollar has lost approximately 95% of its value since then, your arbitrary value indicator would now be a 5.  The problem is that the dollar can lose 90% of its value over and over again meaning this value indicator would eventually be .00005 (or something of the sort).  At this point, or likely much sooner, many people would be pissed that the dollar value was .00005!  But, we don’t have a value indicator to make us realize just what our dollars are worth.  Instead, we just see the effects of inflation, namely rising prices.

Who Needs A Strong Currency

Today, I heard an investment advisor make the argument that there is no reason to raise rates and protect the currency.  Why would we do that?  There are only bad consequences to this he argued, saying that it would choke off any recovery that we have so far.  While this might be true, I would argue that killing our currency will have worse, longer term effects than a few years of a rough economy.

Yes, a weak currency can have a short term boost on exports.  But, currently, governments around the world are racing to weaken their currencies against each other (the result is gold rising against all currencies).  Every government wants to stimulate their own economy by having a weak currency.  It’s a race to zero.  A common sense person with no economic knowledge would probably agree that this can’t be the right path to global economic growth.

No nation has ever prospered as a result of a increasingly weakened currency. 

Devastating Effects

This dollar destruction policy, which has been whole heartedly embraced by the majority of the economic community and policital community, has devastating effects on average Americans, especially the lower classes.  As the economy remains sluggish, average Americans will see their purchasing power erode and the cost of living rise (mainly seen through rising rent, rising gas prices, grocery prices, etc.).  While wage growth remains flat at best, this is an awful scenario for many people.

The weak currency policy has been the official economic policy of this country for far too long and both political parties are responsible.  It’s time to elect someone who wants to defend our currency and restore our country’s fiscal health.  Ron Paul comes to mind…

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