How Can the Economy Be Measured? The Floundering U.S. Dollar

The U.S. dollar is a unit of measure of the value of things. Like the inch, pound, mile, minute, hour, light-year, etc., the dollar should be constant. Unfortunately, it is not.  This was not always the case.

The value of the U.S. dollar was linked to the value of gold until October1976.  At that time, the U.S. government officially changed the definition of the dollar.  All references to gold were removed from statutes.  From that point on, the international monetary system became a pure fiat system.

Since that time, the dollar has been losing value.  Imagine the inch changing its length over the same period of time. How could we measure anything, reliably?

The same is true with the ever-changing dollar.  It takes more and more dollars to buy unchanging commodities than in 1976. Or 1986. . . . Or today.

Never changing gold is still a good measure of the declining value of the dollar.  In 1792 through 1833, $19.39 would buy one ounce of gold.  Subsequently, the price of gold increased to the low $20s, until 1933, when it began its climb to around $35 per ounce. 

Then, in 1968 the price began to soar — to $106.48 in 1973. Finally, in 1976 the U.S. government officially changed the definition of the dollar. All references to gold were removed. The U.S. dollar became a pure fiat currency.  Today, it takes approximately $1308.40 to buy an ounce of gold in the free market.

As the Federal Reserve continues to print money with which to purchase Treasury and bank securities, the purchasing power of the dollar continues to decline, i.e., it purchases less and less.  A visit to the grocery store makes that abundantly clear.  People on fixed income find themselves squeezed in making ends meet.

Without a growing and productive economy, the government’s revenue from taxation is seriously deficient.  The Federal government is currently borrowing or printing over 40¢ of every dollar it spends.  This inflationary trend threatens the value of the American dollar as never before . . . and the very solvency of the United States of America.

If American voters continue to elect tax-and-spend, handout happy Democrats, a crashing dollar and U.S.A. insolvency are likely to occur – sooner versus later.

Image: http://currencycrisis.wikispaces.com/A+Looming+Currency+Crisis