Dollar Devaluation since 1913
To devalue a currency, like the dollar, means that the value of the currency decreases. In the case of the dollar, we call dollar devaluation. The value of a currency is also referred to as purchasing power. The more a currency is devalued, the less you can buy with it because the purchasing power decreases.
The graph below shows the purchasing power of the US dollar since 1913. 1913 is when the Federal Reserve, which is actually a privately-owned central bank, took over the US banking system. As you can see, it’s been pretty much downhill since the Fed took over. In fact, the dollar has lost over 96% of its value. That means today’s dollar would be worth less than 4 cents back in 1913.
How does the Federal reserve devalue the dollar? By printing more money. Printing more money causes monetary inflation. That means there are more dollars in circulation, but just because there is more paper money floating around, that doesn’t mean value has been created. All you really get is price inflation. Here’s an extreme example: Let’s say the Federal Reserve just gave everyone in America $1 million. Wouldn’t that be great if everyone in America became a millionaire over night? Unfortunately, nothing would change, except prices would increase. Think about it. How much would you have to pay the plumber to come to your house, if he’s already a millionaire?
Unlike paper money dollars, which can be printed out of thin air, gold does not lose value. In fact, gold doesn’t really go up or down. When gold goes up, it really means the dollar is going down and when gold goes down, it’s actually the dollar getting stronger (increasing its purchasing power). So by keeping a portion of your savings in gold, you offset the losses of your dollar being devalued by the Federal Reserve and reckless government spending. When you buy gold or other commodities that resist inflation, it’s called a hedge against inflation.