Why the U.S. Dollar Constantly Loses Value

Why the U.S. Dollar Constantly Loses Value


Today, you would need over $2,000 to buy the same amount you could have bought in 1913 with just $100. There is a reason.

Ever wonder why your dollar doesn’t seem to stretch as far as it used to? There is a simple explanation: It’s worth less. The reason for that is, the nation’s money supply is constantly being expanded.

Between 1783 and 1913, the U.S. dollar was a real store of wealth. Except during war-time periods, inflation within the U.S. was essentially zero. If you saved one dollar in 1800, a hundred years later you could still purchase approximately the same amount of goods with that dollar.

But then in 1913 something changed, and the U.S. dollar started down a long, steady road of dollar devaluations. Using the U.S. government’s own figures, to obtain the same amount of purchasing power of $100 in 1913, you would need $2,038.38 today.

In 1970, Herbert W. Armstrong wrote about how as a boy his mother asked him to “[g]o to the meat shop and get a dime’s worth of round-steak. And tell the butcher to put in plenty of suet.” Even then, he related, each person in his family didn’t get a 12-ounce steak, but each person did receive a small piece of meat, plus plenty of gravy for the potatoes.

In times past, the dollar certainly seemed to stretch further. Mr. Armstrong quoted the Labor Department’s figures for how much $5 would have purchased in 1913: 15 pounds of potatoes, 10 pounds of flour, 5 pounds of sugar, 5 pounds of chuck roast, 3 pounds of round steak, 3 pounds of rice, 2 pounds each of cheese and bacon, and a pound each of butter and coffee; that money would also get you two loaves of bread, 4 quarts of milk and a dozen eggs. “This would leave you with 2 cents for candy,” he wrote.

Wow. At most grocery stores today, with $5 you would be hard-pressed to buy a pound of round steak and a chocolate bar.

What changed in 1913? That was the year the Federal Reserve System was adopted by the U.S. government and the nation took its first steps toward abolishing the gold standard and instead adopting a banking system that allowed for unlimited paper money to be created.

As described by Alan Greenspan in 1966, the new system consisted of “regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. … But now, in addition to gold, credit extended by the Federal Reserve banks (‘paper reserves’) could serve as legal tender to pay depositors.” In other words, the dollar would only be partially backed by gold, and banks could create money by lending out money secured by credit from the Federal Reserve banks (even though the reserve banks did not necessarily have gold on deposit themselves). Thus the seeds of America’s first fiat (currency not backed by gold) dollar system were sown.

At that time, however, there were still restraints upon money supply growth, because the dollar was still convertible to gold upon demand. Anyone cashing in paper dollars was still legally entitled to its value in gold, so the money supply did not balloon completely out of control.

After World War ii, the U.S. dollar became the world’s reserve currency. Toward the end of the war, representatives of most of the world’s leading nations met to create a new international monetary system, later known as the Bretton Woods agreement. At this meeting, they decided that since the U.S. economy had come to dominate the globe, and because it held most of the world’s gold due to the war, they would tie their currencies to the dollar, which, in turn, would be convertible into gold at $35 per ounce.

However, under the Bretton Woods system, there were still limits on how much paper money a country could create. Each country had to police its own currency or be forced to revalue. The U.S. itself was constrained from overprinting money because the dollar remained fully convertible into gold.

However, this changed in 1967-68, when Congress authorized the U.S. Treasury to stop redeeming paper dollars for silver. By 1970, silver was removed from the production of coins. In 1971, Nixon closed the gold window, no longer allowing foreigners to exchange their dollars for gold and thus ending the Bretton Woods agreement. From that point on, America’s dollar became fiat, not backed by tangible assets. As the Federal Reserve Bank of Minneapolis explains, the U.S. dollar is fiat and is valuable only as long as “[p]eople are willing to accept fiat money in exchange for the goods and services they sell”—and only as long as “they are confident it will be honored when they buy goods and services.”

Since people were already in the habit of accepting paper backed by gold, people hardly noticed when the U.S. greenback became no longer backed by anything but faith. People just assumed that the government would make sure that too much was not printed. After a brief U.S. dollar sell-off, in which gold spiked up into the $800 range and the Federal Reserve jacked interest rates into the high teens, people decided they would trust the government and continued using the U.S. dollar.

The U.S. now operates on what many refer to as the Bretton Woods 2 system. Although there is no formal central bank agreement (as was the case with Bretton Woods 1), many of the world’s central banks, especially those of Asian countries, have more or less informally pegged their currencies to the dollar.

But this system is inherently more unstable than the previous precious-metal-based non-fiat system. Since the U.S. dollar is no longer convertible to gold, there is no theoretical limit to which the U.S. money base can be expanded—and the U.S. has been taking full advantage of this situation to increase its money supply.

Nevertheless, as one well-known economics saying goes, “There ain’t no such thing as a free lunch.” America’s monetary expansion has been a primary driver behind the massive and continual erosion in the U.S. dollar’s purchasing power. As the government has massively increased the money supply, those dollars have become less valuable.

America’s massive monetary expansion could be about to boomerang on itself. Increasing the money supply beyond demand can have short-term benefits like stimulating consumer spending; however, it also always results in longer term economic damage such as inflation and a falling dollar. Additionally, the larger consequence for America is that by persistently destroying the value of the dollar by overprinting, foreign nations are losing confidence in the dollar and its role as a reserve currency.

British, U.S. Militaries Dangerously Overstretched

British, U.S. Militaries Dangerously Overstretched

US Army

Evidence is mounting that military overstretch is starting to leave Western combat units in Iraq dangerously vulnerable. According to a recent British Ministry of Defense document, the British Army is facing “critical weaknesses” so endemic that it is “almost impossible” for it to complete its duty in Iraq and Afghanistan (Independent, October 29).

In fact, 40 percent of Britain’s divisions report “serious or critical” problems relating to manpower shortages and are having serious problems attaining the state of “immediate readiness” for war. Units displaying critical weaknesses would find it “almost impossible” to meet pressing commitments in the field while units with serious weaknesses would find it “difficult but not impossible,” according to the Ministry of Defense (ibid.).

There are such shortages in certain key military professions that leaves of absences are being cut and extended tours are becoming commonplace. According to a recent National Audit Office report, the British military currently has a shortfall of 5,000 personnel. That may not sound like much, but when you consider that the UK only has 7,000 troops in Iraq and 5,000 in Afghanistan, it illustrates how debilitating the shortfall really is (Agence France Presse, November 3).

America too appears to be facing military overstretch. Recent warnings have come from U.S. Gen. Peter Schoomaker, who refused to submit a budget plan for 2008, arguing that the military could not continue operations in Iraq and its other missions without additional funds. General Schoomaker warned that the Iraq war has put a brutal strain on regular military budgets, which is languishing after Congress and the White House slashed several Army spending requests over the past months. General Schoomaker is regarded as an ally of the Pentagon administration, so his vocal protest underscores the seriousness of the funding shortfall (Guardian,September 26).

What’s more, as wars in Iraq and Afghanistan continue to wear on, U.S. military recruitment numbers continue to drop. In order to sustain operations, like British troops, American troops too have been held beyond their contracted terms.

“It’s quite a debacle,” says military analyst Loren Thompson, who represents the Lexington Institute think tank. “Virtually everyone in the Army feels as though their needs have been shortchanged.”

There couldn’t be a worse time for America and Britain to face crunches on their military capabilities. Trends indicate an escalation of dangers that will require robust intervention.

The Measure of Humility

The Measure of Humility

Jupiter Images

A Thanksgiving message

One of America’s greatest presidents wrote, “Therefore, I … president of the United States, do appoint the last Thursday in September next, as a day of humiliation, prayer and fasting for all the people … in all humility and with all religious solemnity, to the end that the united prayer of the nation may ascend to the throne of grace and bring down plentiful blessings upon our country.

“In testimony whereof, I have hereunto set my hand, and caused the Seal of the United States to be affixed, this 12th day of August ….”

Humiliation, prayer and fasting! A day of humility! What a perceptive man this president had to have been to see the need for a day of humility for the American people.

Herbert W. Armstrong noticed this tremendous attribute and commented, “How far from God has our nation gone since that proclamation was signed, in 1861, by Abraham Lincoln.”

The act that brought President Lincoln to see the immediate need for the nation to be humble was precipitated by a shot from a heavy mortar fired against Union Fort Sumter at 4:30 a.m. on April 12, 1861. This was the act that began the American Civil War.

Volumes have been written on what the war was about. Many theories have been postulated as to causes: economics, slavery, politics, states’ rights. Possibly more important, however, was the intended purpose of the war.

The basic goal, the main thought that brought about the Civil War, is noted in the banner headlines of the Charleston Mercury, which shouted,

EXTRA: Passed unanimously at 1:15 o’clock, p.m., December 20, 1860. An ordinance. To dissolve the Union between the state of South Carolina and other states united with her under the compact entitled “The Constitution of the United States of America.”We, the people of the state of South Carolina, in Convention assembled, do declare and ordain, and it is hereby declared and ordained … that the union now subsisting between South Carolina and other states, under the name of “The United States of America,” is hereby dissolved.The Union is dissolved!

There, stated, was the intended purpose of the Civil War: to destroy the Union of the United States.

Abraham Lincoln was never confused about this purpose. As he rode to his inauguration on that chilly and cloudy day of March 4, 1861, he was already a dedicated man. With his address in hand, he ascended the platform and delivered a speech as impressive in its composition as any he ever gave.

At the conclusion of that inauguration speech, he issued a grave warning to those in attendance. “In your hands, my dissatisfied fellow countrymen, and not in mine,” he said, “is the momentous issue of civil war. The government will not assail you. You can have no conflict, without being yourselves the aggressors. You have no oath registered in heaven to destroy the government, while I shall have the most solemn one to ‘preserve, protect and defend’ it.”

America’s history is a testimony that his words went unheeded by the vast majority. And so, as the guns of war erupted in the surrounding countryside and as civil war tore a nation asunder, President Lincoln called for a day of humility for the American people.

A Need for Humility Today

President Lincoln recognized the grievous need for God’s intervention in human affairs in the 19th century. We should recognize this need today. We all would profit from submitting to a day of fasting and prayer, because, as a nation and individually, we suffer from a lack of humility.

As world events rapidly advance toward the arrival of God’s government upon this Earth, the need for godly humility has become more and more apparent.

“God’s law,” Herbert Armstrong once wrote, “regulates human relationships—with God, and with neighbor. God’s way is love—outflowing concern for the good of others— humility, obedience to God, cooperation, serving, sharing with neighbor. Satan’s way (this world’s way—human nature) is the way of rebellion, competition, strife, violence, disagreement” (co-worker letter, Jan. 26, 1983).

He said this often. Notice also: “God’s government is based on God’s law. God’s law is love. It is love to God, and love to neighbor. It is serving, helping, sharing. It is humility, love and obedience toward God, loyalty, trust, faith and reliance upon God. Satan turned to iniquity—vanity, lust, greed, spirit of competition and taking, disloyalty, selfishness, jealousy, envy, resentment, rebellion, hatred” (ibid., May 2, 1974).

Humility toward God provides the ability to work out human problems. Pride destroys that ability.

What are the main characteristics of today’s world events? Read it in your own news sources: nation is rising against nation, wars and more wars, hatred and violence, murder, mayhem, pornography, destruction of families, rampant immorality!

Do we think God doesn’t notice? That God won’t exact retribution for our filthy abominations? We need to think again!

We desperately need God’s intervention, as a people and as a nation. We should ask ourselves, “When did God ever watch a nation commit the sins we have committed and not take notice?” The answer: Never! Whether we believe in God or not, history contains the record for us. Not one immoral society went unpunished—not one. Sodom and Gomorrah are two examples. Rome is another.

In Decline and Fall of the Roman Empire, Edward Gibbons wrote about that empire:

The first of these periods may be traced from the age of Trajan and the Antonines, when the Roman monarchy, having attained its full strength and maturity, began to verge toward its decline …. The last and longest of these periods includes about six centuries and a half; from the revival of the Western Empire, till the taking of Constantinople by the Turks, and the extinction of a degenerate race of princes, who continued to assume the titles of Caesar and Augustus, after their dominions were contracted to the limits of a single city; in which the language, as well as manners, of the ancient Romans, had been long since forgotten.

The truth is, the Roman Empire itself, which was built by conquering weaker and more degenerate societies, and which lasted for centuries, ceased because of degeneracy and debauchery, just as Sodom and Gomorrah. God does take notice—those who fail to heed will not escape.

But while God resists the proud, He gives grace to and protects those who are humble. In Isaiah 66:2, God says, “But this is the man to whom I will look, he that is humble and contrite in spirit, and trembles at my word” (Revised Standard Version).

Being humble means taking God at His word and acting on it. It means allowing God to guide our lives, striving to follow His way of outgoing love toward others. It means loving righteous government, and desiring to be governed.

Failing to be humble will only bring retribution upon us. And trying to act religious, or behaving in a self-righteous way while actually rebelling against God’s laws, will not be accepted. Hypocrisy will not be accepted.

Why Thanksgiving?

Abraham Lincoln placed great importance on the attribute of humility. Few today realize that in October 1864, it was he who proclaimed a day of giving thanks. Neither do we remember why the day of Thanksgiving was instituted, nor how he recommended it be observed. It would be well for us to read those words now.

In part, that proclamation says,

It has pleased Almighty God to prolong our national life another year, defending us with His guardian care against unfriendly designs from abroad, and vouchsafing to us in His mercy many and signal victories over the enemy, who is of our own household … while He has opened to us new sources of wealth, and has crowned the labor of our working men in every department of industry with abundant rewards.Moreover, He has been pleased to animate and inspire our minds and hearts with fortitude, courage and resolution sufficient for the great trial of civil war into which we have been brought by our adherence as a nation to the cause of freedom and humanity, and to afford to us reasonable hopes of an ultimate and happy deliverance from all our dangers and afflictions.Now, therefore, I, Abraham Lincoln, president of the United States, do, hereby, appoint and set apart the last Thursday in November next as a day, which I desire to be observed by all my fellow citizens wherever they may then be as a day of thanksgiving and praise to Almighty God the beneficent Creator and Ruler of the universe. And I do farther recommend to my fellow citizens aforesaid that on that occasion they do reverently humble themselves in the dust and from thence offer up penitent and fervent prayers and supplications to the Great Disposer of events for a return of the inestimable blessings of peace, union and harmony throughout the land, which it has pleased Him to assign as a dwelling place for ourselves and for our posterity throughout all generations.In testimony whereof, I have hereunto set my hand and caused the seal of the United States to be affixed.

We stand on the brink of world cosmocide. It is time, once again, to “reverently humble ourselves in the dust, and from thence offer up penitent and fervent prayers” for “peace, union and harmony.” It is time, once again, to reconnect the concept of thanksgiving to the great attribute of humility.

Oregon Steel Falls Into Russian Hands for $2.3 Billion

Oregon Steel Falls Into Russian Hands for $2.3 Billion


Portland’s Oregon Steel Mills has signed a purchase agreement with Russian steelmaker Evraz Group SA. The successful sale will mean that the Moscow-based giant has achieved the largest-ever Russian takeover of a U.S. company, Bloomberg.com reported on Monday.

Oregon Steel, one of the most diversified steel manufacturers in North America, has had a successful year. Oregon stock has more than doubled in the past year, closing last Friday at $58.96 per share. (Evraz bid $63.25 per share for all of the company.) Oregon has also completed most of the construction on a new spiral weld mill in Portland to further increase its production capacity. The company produces large-diameter pipes for oil and gas transport as well as other steel products.

Evraz Chief Financial Officer Pavel Tatyanin said the transaction gives Evraz an inside track on “one of the largest and most mature markets in the world,” where processed-steel prices are 30 percent higher than in Russia. He added that Oregon’s forte, pipe-making, is “an attractive business to be in,” saying that the company is considering increasing its pipeline-making capacity even further once the acquisition is finalized.

Adding Oregon to the Evraz-controlled stable of companies will increase output by 21 percent, according to the Bloomberg report, and will make Evraz the largest producer of railroad products worldwide. The 21 percent increase in overall steel production will propel it past Germany’s ThyssenKrupp, currently the number-10 steel producer in the world.

According to Roger Nightingale of Millennium Global Investments in London, the takeover is another indication that steel-making in the United States and other developed countries may soon be a thing of the past. “I suspect we’ll end up with no First World steel companies eventually,” Nightingale said, pointing to cheap loans and inexpensive labor enjoyed by Second and Third World companies as a reason First World steelmakers find it hard to compete.

The Bloomberg report also stated that international Russian business has been hampered in the past due to its exclusion from the World Trade Organization. However, Moscow cleared its last membership hurdle on Sunday when it won U.S. approval to join the wto at a meeting between President Bush and President Putin.

To learn more about foreign corporate takeovers and the dangers that underlie them, read “Germany’s Corporate Blitzkrieg,” “Selling Britain’s Corporate Crown Jewels,” and “Canada’s Corporate Sell-Out.”

The Flaw of Diplomacy Without Action

The Flaw of Diplomacy Without Action

Tim Sloan/AFP/Getty Images

Since the Democratic victory in the U.S. congressional elections, talk has increased of striking deals with Syria and Iran to solve the problems in Iraq. Do such deals work?

Immediately after Democrats ran the table in U.S. congressional elections, the presidential administration announced there would be big changes. The White House chief of staff said the president wanted to “take a whole fresh look” at its war effort.

An indication of what that “fresh look” might produce came in the expeditious replacement of Secretary of Defense Donald Rumsfeld with Robert Gates. Gates is widely believed to favor a pragmatic policy, one that would include negotiating with Iran and Syria to fix Iraq’s problems. The president is also considering the recommendations of the congressionally appointed Iraq Study Group, which also recommends opening up talks with Syria and Iran.

That’s “a whole fresh look”: accepting the election as a rebuke of the war policy and moving in a softer direction. Even the president’s British ally, Tony Blair, implied that a deal with Syria and Iran is a possibility.

In essence, however, the administration has already been moving in this direction for a couple of years. The government that swiftly toppled dictatorships in Afghanistan and Iraq has taken every subsequent opportunity to demonstrate its firm commitment to multilateral diplomacy for solving problems. This approach has a consistent history of producing talk without action—always finding another option short of war.

As a result, we are moving into an era when the enemies of Western civilization simply do not fear consequences for their actions. Hence, Hezbollah launches war against Israel; Hamas does everything but; North Korea freely tests long-range missiles and nuclear weapons; Iran spurns international pressure to refrain from doing the same; Iraqi and Afghan insurgents brazenly attack, emboldened by even surviving to fight another day.

These are growing forces in the world that have proven time and again that they cannot be talked into giving up their destructive agendas. But the general policy in international bodies—and in American politics, with a couple of brief exceptions—is still to forego action for the sake of talk, indefinitely.

In Civilization and Its Enemies, Lee Harris exposes the fundamental cause for this approach and explains why it is doomed to fail. It is the difference between one side wanting to do anything (short of dying) in order to hold on to things as they are, and the other side willing to do anything (including dying) for the sake of the cause. One side has everything to lose; the other side has nothing to lose.

The diplomacy-at-all-costs mind does not comprehend the victory-at-all-costs mind. It is unwilling to believe any nation would be so crazy as to risk plunging the globe into large-scale war. Consider: World War i was called “the Great War” because people assumed it would end warfare forever; having witnessed the horrors of that conflict, it seemed unthinkable that anyone would ever tread that path again. Harris calls this idea “the Grand Illusion”—and Hitler exploited it masterfully. He “grasped the enormous opportunity that the aftermath of the Great War gave to any power that could plausibly threaten to bring about another great war. For as long as he could even imply such a threat, those who were not prepared to commit themselves to such a conflict … would be forced to compromise over issues that they would otherwise have been willing to fight for, if only they could have been certain that the fight would not immediately escalate into total war.”

In other words, the party willing to risk even death has an incalculable advantage over the party willing to do anything to preserve life. And the nation unwilling to wage total war will always be forced to appease the nation that has no such fears. Thus a paradox: The more the world turns to instruments of international diplomacy and justice—the more that nations invest their confidence in the ability of such organizations to prevent large-scale war—the greater the rewards become for the nation, terrorist group or religious faction that is willing to risk total war.

Iranian President Mahmoud Ahmadinejad has stated his belief that world war must come before the Islamic messiah can return. He simply does not fear Armageddon. His willingness to risk having even nuclear bombs dropped on his country gives him a tremendous advantage: He can pursue his provocative agenda fearlessly. He will not change his course unless an outside power changes it for him, using force.

International bodies such as the United Nations simply are not capable of action on that scale. They are designed to address problems through talk alone.

America is embracing the same approach, retreating to the illusory bunker of multilateralism. By subjugating itself to the international community, the U.S. is effectively giving up the use of its military as a genuine instrument of national sovereignty.

Given the fact that, in recent years, it has been the only nation willing to fight—even limited, small-scale battles against petty dictators—this trend is opening up a massive opportunity for any party eager to embrace war.

And now, after an election that empowered the party that has incessantly criticized virtually every aspect of those campaigns the president did undertake, the trend will only accelerate.

Lebanon: Becoming Iran’s Puppet?

Lebanon: Becoming Iran’s Puppet?


The people of Lebanon face a critical choice. The Lebanese government is splitting apart. Will they support the U.S.- and European-backed Lebanese government of Prime Minister Fouad Siniora, or will they join the Iranian-controlled Hezbollah axis? The outcome will have profound ramifications for not only their country, but the whole Middle East.

In what has turned into a crisis within the Lebanese government, Hassan Nasrallah, the Hezbollah leader, urged his constituents to prepare for mass protests aimed at toppling the Western-backed government lead by Siniora.

“We could call for demonstrations in 24 hours, 12 hours or 6 hours,” threatened Nasrallah. “When the time comes, we have to be ready. … We have to be ready in all cases.”

The crisis ignited after five Hezbollah-allied politicians resigned from Siniora’s cabinet after talks broke down that would have given Hezbollah more power over the government (including the ability to veto any decisions), as well as over a UN-drafted plan to investigate who assassinated the late Lebanese Prime Minister Rafiq Hariri. The murder is widely suspected to have been ordered from Syria, one of Hezbollah’s primary supporters.

Hezbollah’s aim seems directed toward dissolving the current government and forcing new elections. Although the current administration argues that it is still constitutionally able to operate without the five Hezbollah-allied ministers, it could be significantly weakened since the Hezbollah axis, composed primarily of Shiites, represents the largest single religious community in Lebanon.

Events increasingly indicate that Iran is gaining influence and power in Lebanon. The anti-American sentiment currently sweeping the Arab world will probably hinder the more pro-West Siniora government and provide expansionist fuel for the Iranian-backed Hezbollah axis.

Will Lebanon become a puppet state controlled by Iran? Growing Lebanese electoral support for Hezbollah suggests Iranian influence is rising. This is not good news for any peace prospects with Israel, especially since Hezbollah refuses to renounce its stated mission: the destruction of Israel, the eradication of the Israelis, and ultimately a worldwide Islamic empire. Hezbollah and its backers in Iran and Syria have stated these goals emphatically and repeatedly. With goals like these, there is no possibility of a lasting peace.