For almost 20 years we have seen many books and articles come out about a US dollar crash is inevitable. But why hasn’t the dollar crashed? And how is it that gold is rising in price despite the dollar not crashing?
Presently the dollar is sitting at 106.62. It tried to push below 100 in September of last year but presently is up 47.61% off its 2008 low of 72.23. Hardly a crash in the dollar.
The ones who keep calling for a crash year after year typically have the same agenda, to sell gold or silver or to prey upon the fears of the public and sell books or newsletter subscriptions. It’s an easy sell and I could easily make the case to buy gold and silver based on all the misinformation out there. But I try and write about what I actually see as the real reasons the dollar hasn’t crashed and I am pretty sure I stand alone in this crowd.
Back in 2006, I was a big Ron Paul fan and naturally a gold bug after reading all I could on the subject, primarily from a fear-mongering marketing organization called The Daily Reckoning. This probably stemmed from me in the 1970s reading a report called The Reaper Newsletter that my father used to subscribe to that I’m sure the people at The Daily Reckoning caught onto. They were both fearmongering publications and very good at spreading the fear gospel.
Ron Paul has been a gold bug for most of his career and came from the background of Austrian Economics. I started to read about Austrian Economics and even went to the Austrian Scholars Conference in Auburn to learn more about this type of economics that wasn’t taught in our universities. But when I went there, I discovered they didn’t really know anything about gold and its purpose in a diversified portfolio. They couldn’t answer any of my questions on gold, so I had to look for answers myself. At the time I was conducting research for my first book where in Chapter 4 I wrote 100 pages on the subject.
If found through my research that even Austrian scholars disagree. Most, including Ron Paul, think that inflation is defined by the increase in the money supply. But for me, they make a critical error as that is only one part of the equation of inflation. While mainstream economics views inflation as an increase in prices, and Austrians in general look at inflation as an increase in money supply with the result being higher prices, they leave credit out of the equation.
But before getting into credit and where it first into the dollar analysis, let’s analyze what many economists have said since I first started following Austrian economics around 2002. They say repeatedly that the dollar has lost 97% of its purchasing power since (insert year here). This is true if you analyze the math, but let me break this down for you.
They came up with this 3% number based on price using the CPI calculator to adjust the purchasing power of the dollar over the years.
However, the government had a different view on money when the Constitution was formed. They claimed it was a certain weight of silver as provided by Article 1 Section 8 and Article 1 Section 10:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
and
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make Thing but gold and silver Coin a Tender in Payment of Debts
The United States went off the silver coinage in 1964, breaking from the adherence to the US Constitution that kept the government’s abuse of money in check for the most part.
At that time you can see that the government CPI data shows that the dollar has lost 68% of its purchasing power. This was right before we went fully off the gold standard in 1971.
To put things into perspective if we had stayed with silver as required by the Constitution, the “purchasing power” not price based on what the government’s claim to inflation is as represented by the CPI, would purchase $23.4233 worth of goods today in 2025 with the current spot price of silver being $32.38 an ounce. As you can see from the following graphic one 90% silver Washington quarter, worth 25 cents in 1964 x 4 would come to be $23.4233, basically $23.42.
|
1932-1964 Washington Quarter |
$0.25 |
$5.8558 |
This is what the government has done to our money. Whether you pick the year 1913, 1964, 1971 or 2025, silver has maintained its purchasing power and shows you the true inflation price of constitutional money.
The math adds up as the silver price divided by 25 cents comes out to a devaluation of -98.93%.
So far, what have we concluded? We concluded that silver maintains purchasing power or keeps up with inflation over time. The dollar does not.
But why is the dollar at 101.62 not crashing? Why is it not at 2 or 3 cents in value? The answer took me a 400-page book to write called Illusions of Wealth but in a nutshell, I can narrow it down to
The dollar or dollar index is simply a representation of other currencies, the euro (57.6%), the Japanese yen (13.6%), the British pound (11.9%), the Canadian dollar (9.1%), the Swedish króna (4.2%) and the Swiss franc (3.6%).
To put this in simple terms, pricing currencies in each other doesn’t have anything to do with anything but what that currency is doing verusus other currencies. Nothing more. Pricing the US dollar in other currencies only paints a picture over time how the dollar has done versus this basket of currencies, primarily the Euro which makes up 57.6% of the dollar.
But since 2004, as that is as far back as I can find data (Euro came to fruition in the year 1999), Gold has risen 763.53% in Euro’s.
And for the dollar since 1973, Gold has risen 4,421.93%. The 10-year increase in the price of gold is similar to the Euro.
I could do this for each currency that makes up the dollar and the results would be similar. Gold has risen in price in every currency. Even though these other currencies represent a smaller percentage of the dollar index, you can see how irrelevant these comparisons are in telling you the full story on inflation and purchasing power. It is part of the Illusion I speak of in my book Illusions of Wealth. All currencies are debt. All currencies do not represent wealth except for what they can purchase. And it costs a lot more today to purchase gold and silver than it did since any of these currencies were created.
What makes matters worse for each of these countries that represent the dollar index, including the United States, is the debt that each of these countries holds. The debt to GDP of Japan is 252.40, the United States 122.30, Canada 107.10 and the UK 101.10. The Euro comes in collectively at 88.1% debt to GDP with 6 countries over 100%.
Again, why is the dollar holding up with so much against it? There is a chart from Ned Davis's research that tells us part of the problem; uncertainty. In other words, the dollar is the best of the lousy bunch. As uncertainty around the world has increased, the dollar has gained strength.
Part of this strength is in the belief that DOGE can actually make a difference moving forward with government waste. The sad reality is, it’s not enough. There is a mountain of debt as we all know and have written about. They are making a small dent in the number of deficits, trying to cut $1 trillion or so from the $7 trillion deficits we have been running, but have not tackled the actual annual outlay to what has been deemed essential each year. To tackle this you have to get rid of entire departments of government. And while there is talk of reform here, the odds of this occurring are slim to none. And of course, no one is talking about reducing the national debt of over $36 trillion. The interest on this debt alone is set to become 20% of expenditures in the years to come and is already over $1 trillion a year. What happens if interest rates shoot higher? Will there finally be an effect on the dollar or will this also be hitting all other currencies of the world that also have debt-to-GDP issues?
And now, what about the other elephant in the room besides the national debt? What about the non-stop credit expansion that has occurred since the times of Reagan? I have written about this since 2010 and it’s something that can come crashing down on all of us and crashing down very hard.
First off we have consumer debt which isn’t going to be paid back to banks. Unlike the US government which is allowed to borrow money printed out of thin air by the Federal Reserve, consumers will simply stop paying on credit cards and look to charge off the debt in bankruptcy court. Personal and business bankruptcy filings rose 16.2% in the twelve-month period ending June 30, 2024, compared with the previous year.
Consumer debt of 1.2 trillion is approximately what the U.S. government pays in interest each year.
Any deficit is added to the national debt each year. The last year we had a budget surplus was in 2001 under President Bill Clinton. But keep in mind the national debt still rose that year and has risen every year under every President since Reagan. Of course, during this period of time, we have seen nothing but the best stock market of all time. What could go wrong? Anyone who has followed me knows I have written extensively on that subject. But what’s to come?
While the consumer can’t keep increasing their debt limits, the government always does and no one in Congress thinks twice about doing so and what the longer-term effect would be or will lead to, with Trump in office and the cutting authority of DOGE or not. The following charts from Real Investment Advice paint our future.
Ultimately, the clearing process will be very substantial. A reversion to a structurally manageable debt level would require a nearly $50 Trillion reduction from current levels.
That is the "great reset" many have predicted to be the "end game."
The economic drag from such a debt reduction would be a devastating process. The last time such a reversion occurred, the period was known as the "Great Depression."
I am waiting on an updated chart from Ned Davis Research and will replace the chart below but the data is still the same. There is a credit contraction that will occur at some point and all the printing presses in the world won’t be able to curtail the coming tsunami of paying for the sins of Congress, generation after generation and the contraction to come. The Fed has been relevant till now but they won’t be able to stop it. They didn’t stop the last financial crisis, but reacted to it with QE. Now the Fed has $6.3 trillion on its balance sheet and watches that grow to a much higher unsustainable amount in the years to come.
The amount of credit that has been created since the times of Reagan has been unprecedented. We know we can make some correlations to the Roaring ’20s, the great depression which included the stock market crash, and the government policies to usher in a chicken in every pot. Instead of allowing the bottom to occur, the government will always step in and make matters worse. During the great depression era, Roosevelt first helped the banks by confiscating gold (sound familiar during the last financial crisis?) and subsequently implemented the New Deal which prolonged the Great Depression with higher prices and wages.
Relative prices and real wages in these sectors increased significantly after these policies were adopted and remained high throughout the 1930s, whereas prices and wages in uncovered sectors did not rise. Roosevelt finally acknowledged the impact of cartelization on the economy by the late 1930s: “the American economy has become a concealed cartel system. The disappearance of price competition is one of the primary causes of present difficulties.” (quoted in Hawley [1966, p. 412])
The coming credit contraction will usher in more government solutions offered by Congress. There won’t be any point in time where they will let the economy do what it does and weed out the bad and return to good sooner which is what Roosevelt should have done. People take care of people and anyone suffering has always been taken care of. It may not seem like anyone cares about homelessness today but that’s an entirely different issue than what I want to address today that includes drug addiction and lack of mental health services.
The point is, our government doesn’t have the funds to help anyone at the rate they are going and DOGE won’t do enough today to fend off what’s coming down the road. Personally, you shouldn’t care and here’s why.
Conclusion
Putting all the pieces together we find out that the dollar doesn’t really matter. It’s impossible for the dollar to crash without those countries' currencies that make up the dollar skyrocketing. Why would they? No, all of these currencies are on a ship called the Titanic and the only lifeboats for those who are smart enough to bail on the currencies are made of gold and silver. If you bought silver in 1913, 1964, 1971, 2011, or today in 2025, you have maintained your purchasing power and the same can be said for gold. Gold and silver are no one else’s obligation (not a debt to someone else) and Constitutional honest money that handcuffs the abuse of government and non-government officials. The fact is, you can create your own monetary system for that portion of your dollar-based portfolio you want to insure. It can always be exchangeable to the scrip of the day down the road. You can still invest in the stock market, real estate, bonds or what have you. I do like silver still over gold. The gold-silver ratio says buy silver. In the years 1971-1980 and 2000-2011, silver outpaced gold. There may come a time to sell your gold and silver and buy other beaten-down assets but that’s not today and probably not for the next 3 years.
On a political note, the Democrats would like nothing more than a Donald Trump failure and are most likely to usher in socialism if Trump doesn’t right the sinking ship. None of us want to be on a sinking ship. I’ll write about solutions for the USA in the future and the bottom line is, if we all have to live within our means, the government needs to do the same. Both sides got us here so it’s not like one is better than the other although the media would like you to think so. I simply look at things from a monetary and economic perspective and the writing is on the wall as to what’s coming. We can’t print ourselves out of this mess any longer. Gold and silver will get to the “undreamed” heights that Richard Russell used to always talk about in the 3rd “euphoria” stage. We are about to enter this stage. Hold on for the wild rise.