Money can be many different things. We began yesterday discussing the history of money and will now look at this history within the United States. When the United States Constitution was written, it gave Congress the right to “Mint Money”. Every intelligent person knew that to be a valid currency, it must be backed by gold or silver. The world prospered greatly under this system for 200 years because nobody broke the rules! The United States grew from a distant land of farmers to being one of the mightiest nations on the planet. Then things changed.
In 1913 the United States created the Federal Reserve. This is a private company owned by bankers for the benefit of bankers which was given tremendous power and authority over America. Shortly afterward, World War One broke out.
Because this was a war that involved Western powers, they all wanted to win, and they didn’t have the money necessary for this all out war. They all broke the rules of money laid out 200 years before. The Printing Presses were off to the races!
When the war ended, governments everywhere had a new addiction and they weren’t going back!
In 193, FDR saw that we had a serious problem. We had printed way more Dollars than we could redeem for gold at $20/ounce. So he decided to steal all Americans’ gold! Sound a little harsh? Okay, maybe he only stole half of it. Let’s look at what he did. He made the ownership of gold illegal in America and demanded that Americans turn it in to the Federal Reserve where they would be paid in full $20/ounce for their gold. As soon as it was all turned in, he changed the value of the Dollar from $20/ounce to $35/ounce. So while he did pay Americans for their gold, he then immediately devalued the Dollars he gave them by almost half. I bet a lot of people wished he had changed the value AFTER they had turned their gold in!
This confiscation of gold and devaluation of the Dollar made the US Dollar closer to being a real currency again…but the printing presses never stopped. By the 1960’s the government was having to deliver tons and tons of gold because the word was out that the US Dollar was not worth anywhere near the $35/ounce that it claimed.
In 1971, Nixon took America completely off the gold standard. The Dollar was no longer backed by anything real. This is what is known as a “Fiat Currency”. Fiat means “by proclamation”. In other words, this green paper is money because the US Government says it is, instead of because the money represents real wealth in a vault the way it did the first couple hundred years America had existed.
It’s important for you to understand that EVERY SINGLE fiat currency in the history of the world has eventually reached the value of NOTHING. It becomes worthless because government bureaucrats cannot resist the power that comes with printing new ones. We challenge you to find one currency in history that has lasted more than 50 years backed by nothing. The US Dollar has been backed by nothing for about 40 years now.
This is Part 3 of the series Hyperinflation and the Dollar. To continue with this series, click on Pt 4. To use this as a growth tool to better understand your own calling, please read Pt 1 and Pt 2.
Photo credit: degrazzi