How Much Has the Fed Devalued Our Money?
Thanks to money printing and credit expansion, the Federal Reserve has significantly devalued the dollar.
Devaluation is a inherent feature of fiat currency. Since it isn't backed by anything, the Fed can create new dollars on a whim (inflation). The more dollars it creates, the less each individual dollar is worth.
President Richard Nixon severed the dollar from its last connection to the gold standard in 1971 making it a pure fiat currency.
When he announced the closing of the gold window, Nixon said, “Let me lay to rest the bugaboo of what is called devaluation,” and promised, “your dollar will be worth just as much as it is today.”
This was a lie.
The dollar has lost more than 85% of its value since Nixon’s fateful decision, based on the CPI calculator. The purchasing power of a 1971 dollar is equal to about 13 cents today.
Meanwhile, the dollar value of gold has gone from $35 an ounce to around $1,900 an ounce today. In percentage terms, that’s a 5,329% increase.
We can demonstrate the devaluation of the dollar in a tangible way by pricing a good or service in gold and examining the change in price over time.
As an example, let’s consider a high-end men’s suit.
In 1900, the average price of a high-end men’s suit was around $35. At the time, the price of gold was set at $20.67 per ounce. That means a high-end suit priced in gold would have cost around 1.7 ounces of gold.
Today, the average price of a high-end suit is around $2,000. Obviously, prices vary depending on the brand, region and other factors, but this provides a fair average. At the time I’m writing this, the price of gold is around $1,840 an ounce. I’ll use $1,800 for this calculation to keep it simple. That means a high-end suit priced in gold today costs a little over 1.1 ounces of gold.
As you can see, the price of a suit in gold has dropped a little over 35% since 1900. A price drop is what you would expect given advances in technology and productivity. But in dollars, the price of a high-end men’s suit has increased by 5,614.3%.
Looking at it another way, if you had stuffed $41.34 under your mattress in 1900, today you might be able to buy a couple of Polo shirts if you find a deal. But if you had bought two 1-ounce gold coins and stuffed those under your mattress in 1900, today you’d be able to buy a fancy suit and have about $1,600 left over.