Have you experienced a 5.4 percent increase in your salary this year?
If not, your earnings are effectively being eroded by the federal government’s concerted strategies to devalue the dollar.
According to the Bureau of Labor Statistics, consumer prices have surged by 5.4 percent over the past year. If your salary hasn’t matched this increase, then your purchasing power has diminished compared to last year.
Essentially, price inflation functions as a concealed tax. It’s a covert method for the government to augment spending without formally increasing taxes. Nonetheless, the tax occurs, as the money in your regular paycheck diminishes in value.
The main driver behind climbing prices is the excessive issuance of federal reserve notes by the Treasury through deficit spending. This debt-based money infiltrates the economy via government transfer payments and various expenditure programs, leading it to compete with the existing money supply for goods and services, thereby inflating prices.
During the first ten months of the fiscal year, which concludes on September 30, the federal government has incurred a budget deficit of $2.54 trillion. Notably, the Federal Reserve has purchased around $800 billion of this debt, or roughly one-third, using credit created from thin air. Since July 2020, the Fed has been acquiring $80 billion in Treasuries each month.
The ineffectiveness of these dollar devaluation policies in sustaining a balanced and thriving economy is starkly evident. Asset prices have been rising for over a decade while wages have largely stagnated, creating a dramatic wealth disparity.
For the controlling central planners, functioning within the boundaries of a stable monetary supply and a balanced budget seems utterly unthinkable.
Out of Control Finances
In a misguided attempt to rectify this imbalance, the federal government is gearing up for another spending spree. Recently, for instance, the Senate reached an agreement on a $1 trillion infrastructure bill, which approves $550 billion in new spending in addition to the already authorized $450 billion.
Details on this spending remain unclear, but the 2,700 pages of Congressional quid pro quo likely harbor substantial waste. And that’s just the beginning…
The upcoming $3.5 trillion human infrastructure spending initiative may face some trimming due to the looming debt ceiling negotiations, but it is unlikely to be adjusted to any level a reasonable person would consider responsible.
Clearly, Washington lacks the tax revenue to support this new expenditure. The additional debt piled onto the already colossal $28.6 trillion national debt is simply too vast to be repaid honestly. Thus, repayment will occur via the printing press—essentially resulting in a stealth default through dollar devaluation.
Interestingly, in this tumultuous landscape of rising consumer costs, substantial deficits, and significant money supply growth, the dollar has been appreciating against foreign currencies and precious metals.
A year ago, an ounce of gold was priced over $2,000; today, it’s around $1,755. Moreover, this year, the dollar has risen 3.41 percent as measured by the dollar index.
What’s going on?
If you own physical gold and silver as a safeguard for your wealth—something you should—don’t fixate on the fluctuations of gold’s price. Given the reckless spending by politicians in Washington, gold’s value in dollar terms is sure to increase over the next decade. You can rely on that.
Gold will ultimately prevail—not merely for its allure but out of necessity.
Unlike gold, which carries no debt obligation or counterparty risk, dollars and dollar-denominated debt instruments, such as bonds, can become worthless if the promissory notes are defaulted upon. They can also be rendered valueless when a desperate Federal Reserve, in conjunction with an overextended Treasury, resorts to printing vast sums of money.
Without a doubt, government finances are severely out of control. The narrative of how we arrived at this unsatisfactory situation is long, but a pivotal point in this saga occurred nearly 50 years ago, and it deserves mention…
Why Big Government Statists Despise Gold
Gold once imposed limits on the issuance of paper currency. The Treasury, alongside the Federal Reserve, could not issue limitless amounts of debt-based money. However, this changed when the U.S. severed the connection between the dollar and gold, initiating the dollar reserve standard.
Before 1971, as stipulated by the Bretton Woods monetary system established in 1944, a foreign bank could exchange $35 for one troy ounce of gold from the U.S. Treasury. Once the U.S. reneged on that exchange rate, foreign banks were given $35, but received nothing in return.
President Nixon executed this betrayal on August 15, 1971—nearly 50 years ago.
To his credit, Nixon was merely acting within a problematic context. The value of the dollar had significantly eroded, down from its $35 exchange rate, largely due to LBJ’s “guns and butter” policies of the 1960s. Johnson attempted a temporary solution in 1968, trying to suppress gold prices using a two-tiered system, but this intervention quickly proved unrealistic.
The pretense that $35 equaled one ounce of gold became untenable as inflation and monetary supply expansion took hold.
However, the deceit did not end with the collapse of the Bretton Woods system. Instead, it began with a lie—Nixon’s announcement to “temporarily” suspend the dollar’s convertibility into gold. This so-called temporary measure became a permanent fixture. You can view Nixon’s announcement at this video link.
It’s a video worth revisiting; it serves as a striking example of a government official contradicting reality from the moment he speaks, coupled with a troubling display of economic ignorance.
Ultimately, big-government advocates despise gold-backed currency because it constrains their reach and power. As Washington continues to erode the value of the dollar, expect to see new unconventional initiatives arise—potentially in the form of government-issued digital dollars that monitor and influence how you spend your money.
Much like Nixon’s abandonment of Bretton Woods nearly half a century ago, these new measures represent the desperate actions of a beleaguered political class.
Sincerely,
MN Gordon
for Economic Prism
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