Applying the Lessons of History to the US Dollar
It is likely that you have never heard of George Santayana, but I am almost certain that you have heard his famous dictum: Those who cannot remember the past are condemned to repeat it.
If only George could advise the United States Congress, or the Board of Governors at the Federal Reserve. The US dollar isn’t the first leading global currency and, thanks to the actions of our wise overlords, it certainly won’t be the last.
Luckily, you can still take lessons from those who came before us – even if politicians and central bankers won’t.
Currency Lessons from World History
The Romans had, perhaps, the most famous currency in antiquity – the Denarius. In the early years of the republic (200 B.C.) the Denarius was a 6.8 gram silver coin and helped bring widespread wealth and stability to the Roman economy.
By the end of the republican period, however, the Denarius was undergoing an inflationary debasement. By the end of the reign of Augustus (14 A.D.), the currency had lost nearly half of its silver content. Every time the empire faced budget difficulties and needed money to finance construction or conflict, the silver content in the Denarius was slashed. It was completely out of circulation by the end of the third century.
One of the last Roman coins, the Solidus, was made the official coin of the Byzantine Empire in 312 A.D. Learning from the mistakes of their fallen Western brethren, the Byzantines kept the gold purity of the 4.5 gram coin at 24-carats for nearly 600 years. Not surprisingly, the Empire flourished and gained from stable trade with the Middle East and Asia, while the rest of Europe struggled through the “Dark Ages.”
All of that stability was undone over the next 200 years. The Solidus was debased to the point of uselessness and hyperinflation lead to the introduction of the Hyperpryon. Tragically – yet predictably – this too was inflated away by an overextended and dying empire.
Other notable currencies rose to prominence and facilitated international trade; the Spanish “Pieces of Eight” served as a standard for a few hundred years, and was even considered legal tender in the United States before the Federal government outlawed all private or competing currencies in the 19th century.
From 1815-1914, the British pound sterling actually gained value. That’s not something that economic historians ever pay attention to – but deflation was the order of the day in (what was then) the most powerful economy in the world. They also adopted free trade policies, and the world flocked to the hyper-productive British markets. By the mid-19th century, Britain was supplying half of the manufactured goods in Germany, France, Belgium and the United States.
At the same time, the needs of the British empire caught up to its treasury. Conflicts all over the world sapped much of the gains of the last century. Strong international competition from the United States and Germany cut into British exports. WWI pushed them into inflationary practices, and prices rose by as much as 25% from 1914-1919.
By the time WWII was over, the US dollar was the preeminent currency around the entire world. It has maintained that role for 70 years now, and it has helped the American people live a life of comparative luxury while the government borrows and spends at historic levels.
Preparing for the Crash
In the 100 years since the Federal Reserve Act was signed into law, the US dollar has lost over 97% of its value. Conflict and competition around the world now threaten our preferred currency status, much like our British predecessors a century ago.
China and Russia are coming after the dollar. It’s too entrenched to collapse in a hurry – but it will be replaced. Another currency will take its position as the dominant global money. With all likelihood, that next currency will eventually fall as well.
Some investors are going to understand this threat and survive it – even profit along the way. Sadly, many more will be left holding worthless little green notes that, once upon a time, actually meant something.
For many, gold and silver will represent a way to transfer their wealth into real assets which have survived and thrived for thousands of years. To learn about the advantages of owning precious metals and how to add them to your portfolio, request our Free Investor’s Kit today.