Last month, we published a Gold Watch commentary underscoring the observation that what is reported as inflation is really a reflection of the declining purchasing power of the currency. A general rise in prices is not the cause of itself; it is the effect of a monetary malady.
It is vital that people seeking wealth preservation and those saving for retirement keep that distinction in mind.
There are other things in financial discussions and news reporting that need to be reexamined in an inflationary environment. One of the most perilously misleading in common parlance are reports about the dollar. You hear them daily in the financial news: “the dollar was up today,” “the dollar weakened,” “the dollar has been strong this year,” and so on.
Persuading people that a currency is sound even as it fails is some sort of Jedi Mind Trick! Let us take a moment to avoid being misled by such sleight-of-mind.
All such descriptions of the dollar’s strength are based on a comparison to a collection of leading foreign currencies. The popular US Dollar Index (DXY) compares the value of the dollar to a basket of a half dozen other major currencies.
That may be important if you are an importer or exporter, setting prices based on an index or if you have receivables in foreign currencies, but for all the rest of us, most people, the true test of a currency’s value depends on what we can buy with it.
Today, all the world’s major currencies are losing purchasing power. To say that the dollar is up one day means only that it is not losing value as fast as other currencies.
No one would claim that the Titanic was up if it were simply sinking more slowly than some other ship like the Bismarck or the Lusitania. If all the ships are sinking, it is best to not get pulled into the inky depths by becoming too comfortable with a ship that has a slower rate of descent.
We can make the point differently by saying that all the world’s currencies — Euros, Yen, Francs, Pounds, Yuan, and Dollars –- are empty representations of value. Because they can all be printed at will, they are an inadequate measure of wealth preservation, inconstant like a yardstick on a rubber band. Unreliable like the butcher’s thumb on the scale.
To make the point graphically, here is a chart showing the movement of the Federal Reserve dollar index (green) since 2005. While it appears to be mostly up during the period, the fall of the purchasing power of the dollar (red) is dramatic and irrefutable.
A hundred years ago, a dollar bought 0.05 ounces of gold. Today, the dollar buys only 0.00055 ounces of gold. Although gold hasn’t changed in that time, the value of the dollar has diminished enormously.
As a monetary standard, the dollar is just a flash in the pan, compared to gold, the monetary standard of the world for thousands of years. In fact, most dominant trade and global reserve currencies only last in that role for about a hundred years. And then they begin to sink. Accordingly, the global dollar has reached the end of its lifespan. For evidence of that look no further than the rush of central banks to build their gold reserves ahead of a coming debt and currency crisis.
We think you would be wise to do the same.
Let us provide you with a free one-on-one consultation to help you protect your retirement.
The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.