Olivia New Hampshire

The Devalued Dollar

The history of the U.S. dollar and how it pertains to the issues of the U.S. Economy.

                Many are unaware of America’s economic issues, and are oblivious to the fact that the American dollar has been devalued since the early 1900’s. The current economic system America uses is based on the use of fiat currency. Fiat currency is paper currency which has no value other than the paper or coinage it is printed on and the government’s declaration of it being valuable. In the past, currency was in the form of a note that could be redeemed for gold and silver. People would carry around the paper note because it was more portable than gold. These notes were proof that the gold was held on reserve at the bank. This type of currency is what is referred to as a gold-backed currency. The value of the currency was derived from the value of the gold which in turn was valued based on supply and demand on this commodity. However as time went on, gold was taken away from the financial system which raises the question, “What happened to our economy after the gold was taken away?”

               As the government generates artificial dollars by printing more money into the economy, the American dollar becomes less valuable. When Congress engages in what is called deficit spending, they need to create new money in the system in order to make up for the shortfall in revenues. They do this by having the federal reserve loan them the amount of money needed to regain the shortfall in revenues. In a fiat currency system, the money can be created out of “thin air.” In essence, dollar amounts are entered into a computer and a loan is made without a physical commodity backing it. Each time this happens, the money currently in the system loses its value due to the fact that there are more dollars in the system than there were before.

              The Federal Reserve is there to set economic policy for the American economy and also create funds for Congress’s budget. The federal reserve issued the loan to Congress with interest despite Article 1 Section 8 of the U.S. constitution which allows the US government to regulate their own money. The obvious question is, why subcontract this job out to the bankers when they have the right to regulate their own money? Because the bankers created the system.

               In order for our Country to thrive once more, we need to make a lot of fast, smart decisions in regards to the economy. First, America needs to go back to the gold standard and recognize that devaluing the dollar essentially takes away the purchasing power from the consumer by creating a situation whereby an individual needs more money to purchase the good as before. When paper notes represented the amount of gold the American people had, our system was worthwhile. If we went back to this system, our currency would yet again be valuable. Second, American people (the government and Congress) need to have responsible production and consumption. The Congress needs to stop spending more money than they have in order to keep from going into too much debt. For example, the Congress spent over 50 percent of our national budget. Third, we need to bring back cash that American corporations have in overseas tax havens. This will help the economy move in areas prompted by making new loans, research, development and other things. To really set things back on track we need to balance our budget and make an amendment to the Constitution called, “The Balanced Budget Amendment.” This amendment will prevent the Congress from spending more money than they have.

               There will be drawbacks to the solution. There might be budgetary shortfalls when the cash flow is limited. However, creating and solving the problem now will be a lot better than solving the problem twenty years down the road. These issues need to be solved before the problem becomes significantly worse. Although there is hope for the American dollar to fully regain its value once more, the track America is heading on now does not show promise. If these solutions are instituted, the American economy has a chance of revival. Only when the American people lose their belief that the American dollar is worth its full amount, will the fiat currency system that we are currently under, face serious problems. Hopefully, the future president of the United States will focus on this direct issue, because this needs to be taken care of in order for America to flourish once more.