U.S. Dollar Devaluation Since 1913

US Dollar Devaluation Since 1913

U.S. Dollar Devaluation Since 1913

October 20, 2023 549 view(s)

With the U.S. dollar constantly losing value, are you concerned about your investments meeting your financial needs? Are you seeking options for more secure investments than stocks and bonds? 

The U.S. dollar has lost 92% of its purchasing power since 1933. Reasons for the U.S. dollar devaluation include:

  • The creation of the Federal Reserve System
  • The removal of the gold standard
  • The amount of fiat money produced each year

We will share information about dollar devaluation since 1913 and how to invest in tangible, no-risk assets that appreciate.

Types of Money

Understanding the devaluation of money requires knowledge about the four kinds of money we use. 

Commodity money is any physical object with a value that can be used for money. These are usually precious metals such as gold and silver. The value of this monetary system is based on item scarcity and the labor to produce it.

Fiat money only has value due to government regulations. It has no backing from a physical commodity. The value comes from the difference in supply and demand. The government controls how much fiat money it produces to meet economic needs.

 

Fiduciary money is currency backed by a financial institution's or government's promise. This includes digital currency such as credit cards, electronic funds transfers, and banknotes. The promise guarantees its value, ensuring it is exchangeable for goods and services. The value of fiduciary money is based on consumer trust in the issuing institution.

Commercial bank money exists in bank accounts. By depositing money into a bank account, you lend it to the bank. They can loan your money to other customers. This is called fractional reserve banking. Banks only need to physically maintain a fraction of the money they receive in deposits.


U.S. Dollar Devaluation

A 1907 panic resulting in bank runs led to the creation of the Federal Reserve Act, signed into law in 1913 by President Woodrow Wilson. The purpose of the Federal Reserve System is to create economic stability.

Stability is accomplished by creating a standard currency and a board of governors to provide oversight through the Central Bank of the United States.

The Federal Reserve Act was to be active for 20 years. In 1927, the McFadden Act rechartered the Federal Reserve Banks into perpetuity, eliminating any expiration date or repeal.

The Federal Reserve made three large errors impacting the economy and the value of the American dollar:

  • The Great Depression of the 1930s
  • The great inflation of the 1970s
  • The Great Recession in 2008



U.S. Dollar Value Timeline

Using an inflation calculator, we can compare the purchasing power of currency in any year between 1913 and now. Remember that inflation represents an increase in prices, and deflation represents an average price decrease. Inflation impacts the buying power, eroding the dollar's value.

If purchasing $100 in goods or services, here is what it costs you from 1913 to now:

1913-$100 is worth its face value

1923-the same goods and services cost $172.73

1933-due to the depression; goods now cost $131.31

1943-improvement in the economy and inflation leave you paying $174.75

1953-Increasing inflation means you spend $269.70

1963-Your cost is now $309.09

1973-Inflation continues to rise; your price is $448.48

1983-Inflation skyrockets, and you pay $1,006.06

1993-Your cost is $1,459.60

2003-Your cost is $1,858.59

2013-Your price is $2,352.98

2023-$100 of goods in 1913 will now cost you $3,081.91

This timeline shows how world events, recessions, and depressions impact the dollar's value. The more fiat money the government prints, the lower its value. Your money may stay the same, but what you can purchase with it decreases.


Events Impacting Dollar Devaluation

US and world events impact our economy, causing dollar devaluation. Following the stock market crash in 1929, the dollar's purchasing power increased due to deflation.

Other events impacting the US dollar value include:

  • The end of the Korean War in 1953
  • Escalation of the Vietnam War in 1964
  • The Black Monday stock market crash of 1987
  • The global financial crisis of 2008
  • The COVID-19 pandemic of 2020

Four events regarding gold took place in the US. In 1933, President Franklin D. Roosevelt signed Executive Order 6102. The order forbids hoarding gold coins, gold bullion, and gold certificates within the US.

President Gerald Ford reversed that order in 1974 when he signed a bill legalizing private ownership of gold certificates, bars, and coins.

Bretton Woods Agreement

The Bretton Woods Agreement was signed in 1944 at the end of WWII by delegates from 44 countries. The agreement made gold the basis for the US dollar while connecting it to foreign currency value.

Each country was responsible for its own currency. All currency needed to be fully convertible to gold, eliminating the ability to overprint money.

By 1971, only about 22% of US dollars were backed by gold. This decline led to the president of France exchanging his country's US dollars for American gold reserves. Other nations began to do the same.

President Nixon ended the gold standard and Bretton Woods Agreement in 1971 to prevent foreign countries from exchanging their US dollars for gold. At this point, the US dollar became fiat, no longer backed by tangible assets.

This eliminates limitations on how much currency the US can print. Over-printing is the driving force in the decline of purchasing power and will cause residents to become poorer over time.

Remember how volatile the US dollar is when developing or upgrading your portfolio. It may not provide the necessary investment growth. A better option is to explore the advantages of investing in gold


Gold-A Solid Investment

Building a secure portfolio requires a commodity that protects you from loss. Gold is a solid investment that remains stable or gains value, even during inflation.

The sign of a good investment is that it performs well over time, remains liquid, and has a history of success. In today's market, gold is averaging a 12% increase in value, with future estimates looking like it will continue at this rate for several years. This makes it a solid, low-risk addition to your diversified portfolio.



Learn About Gold Investments

With the constant risk of US dollar devaluation, you must invest in commodities that provide long-term financial security. Schedule a free consultation with an industry expert to learn about your options.

We will provide you with the information necessary to make an informed decision. There is no obligation, so contact us today.