Congress and the Fed Erode Your Dollars

[Mountain_Mike]

From Congressman Ron Paul of Texas:

Congress and the Federal Reserve Erode Your Dollars
May 23, 2005

Last week the US Treasury department issued a warning to the Chinese government with regard to its policy of pegging the value of the Chinese yuan to the US dollar. In essence, the Treasury department accuses China of artificially suppressing the value of its currency by tying it to the dollar, thus making Chinese imports very cheap and worsening our trade imbalance.

This kind of bluster may serve political interests, but in reality we have nobody to blame but ourselves for the sharp decline in the US dollar. Congress and the Federal Reserve, not China, are the real culprits in the erosion of your personal savings and buying power. Congress relentlessly spends more than the Treasury collects in taxes each year, which means the US government must either borrow or print money to operate- both of which cause the value of the dollar to drop. When we borrow a billion dollars every day simply to run the government, and when the Federal Reserve increases the money supply by trillions of dollars in just 15 years, we hardly can expect our dollars to increase in value.

If anything, the US government should be embarrassed that another nation has depressed its currency by tying it to the US dollar. An economically sound nation would take pride in its currency, one that maintains a stable value and provides incentive for savers. Yet here we are, mad at China for our own sin of flooding the world with cheap dollars.

The root of the problem is the Federal Reserve and our fiat monetary system itself. Since US dollars and other major currencies are not backed by gold, they have no inherent value. Their relative values are subject to political events, and fluctuate constantly in highly volatile currency markets. A fiat system means every dollar you have can be eroded into nothing by the actions of politicians and central bankers. In essence, paper currencies like the US dollar operate as articles of faith—faith in the policies of the governments and central banks that issue them. When it comes to a government as deeply indebted as our own, that faith is sorely lacking among investors worldwide. Politicians often manage to fool voters and the media, but they rarely fool financial markets over time. The precipitous drop in the US dollar over the past few years is proof that investors around the globe are very concerned about American deficits and debt. When investors lack faith in the U.S. dollar, they really lack faith in the economic policies of the U.S. government.

Unlike wealthy currency traders, most Americans are stuck with their U.S. dollars. Average people, particularly those who depend on savings or fixed incomes to fund their retirement years, cannot abide the continued devaluation of our currency. A true strong-dollar policy would not depend on the actions of China or any other nation. It would, however, require a constriction of the money supply and higher interest rates, both of which would cause some short-term pain for the American economy. In the long run, however, such a correction is the only alternative to the continued erosion of our dollars.

http://www.house.gov/paul/tst/tst2005/tst052305.htm

[nearly50]

Sigh, and to think I voted for him back in the 80's. Everybody knows gold is passe -- cold-pressed latinum is the benchmark to beat.

[unclemick]

The SO never liked Deep Space Nine or latinum - but she sure gloomed onto my last remaining platinum coin(cute Koala bear) and had it made into pendant/necklace.

My hard asset days(70's and 80's) are past - even though the long downtrend may be over and a new uptrend begun. Playing the interest cycle may be more fruitfull.

If some natural resource/material/commodity stocks come into radar range dividend wise - well that's another story.

[Mountain_Mike]

I do think the article alludes to the looming economic threat posed by China. Have you wondered what they are doing with all of those dollars? I see runaway inflation in key areas such as steel and concrete. One of the reasons put forth for the inflation in raw materials is, "China is buying all the steel...(or whatever)."

As far as precious metals as an investment vehicle, they have not been stellar until recently. I did buy some gold when it was under $300 and now it's over $400 an ounce. I didn't buy it for an investment per se...I just liked the look and feel of the coins. There is "something" about holding a hard asset in your hand

[MRGALT2U]

Quote:

Originally Posted by Mountain_Mike I do think the article alludes to the looming economic threat posed by China.* Have you wondered what they are doing with all of those dollars?* I see runaway inflation in key areas such as steel and concrete.* One of the reasons put forth for the inflation in raw materials is, "China is buying all the steel...(or whatever)." As far as precious metals as an investment vehicle, they have not been stellar until recently.* I did buy some gold when it was under $300 and now it's over $400 an ounce.* I didn't buy it for an investment per se...I just liked the look and feel of the coins.* There is "something" about holding a hard asset in your hand

Heidi Fleiss would agree.

JG

[Michael]

Quote:

Congress and the Federal Reserve, not China, are the real culprits in the erosion of your personal savings and buying power.

That's partially why our national bank account savings rate is so low. Why save when the government will just take it away from you? Only those comfortable with risk save because they figure they can beat inflation in equities or some such. The rest attempt to save by building up equity in their homes, and vote to keep home values rising by restricting supply below demand.