Reason #56: The Dollar and the Real Rate of Inflation

The economic “experts” at the Federal Reserve think the best way to grow our economy is just to print more money. That’s why, at the slightest hint of trouble on Wall Street, they piss their pants and cut interest rates. But all the “liquidity” that those rate cuts generate doesn’t equal wealth. It kills the value of our currency - which actually makes us poorer.

Simple supply and demand says that when there’s a glut in the supply of any commodity, its value goes down. Currencies are no different. And with all those newly printed greenbacks flooding the system, the value of the dollar has dropped by half in recent years.

You see, interest rates in places like Europe and Asia are much higher. This “spread” has caused foreign governments and big investors all over the world to trade in their U.S. dollars and invest elsewhere to reap higher returns. Russia’s government vaults used to be 90 percent full of greenbacks. But in the last few years it has converted half of its holdings to euros and English pounds. Other governments have followed suit and even more dollars have gushed into the currency markets.

It’s a vicious cycle. The more dollars get traded for other currencies, the more the value drops. The more the value drops, the more dollars get dumped into the markets, which sends the value still lower. Just a few years ago, the dollar was worth more than the euro and one Canadian dollar only cost 70 U.S. cents. Now, the euro is mopping the floor with the once-mighty dollar and the Canadian “loony” is worth just as much as a note with George Washington on it.

NEXT: Reason #57: Paving Wall Street with Taxpayer Gold