Protecting Your Wealth As U.S. Dollar Loses Value

Have you ever wondered why each dollar you spend doesn’t seem to stretch as far as it used to? The answer is your dollar is worth less all the time. The value is shrinking. The fact is the dollar has lost about 96% of its buying power since 1913. The U.S. money supply is always expanding. The recent acceleration of this expansion is mind boggling.

From the late 1700’s to 1913, the U.S. Dollar was solid as a rock, a real store of wealth. Inflation was pretty much nonexistent except during a few war-time periods. A dollar in 1913 could buy about the same amount of goods as a dollar in the late 1700’s.

In 1913 the U.S. government adopted the Federal Reserve System. This was the first step toward abolishing the gold standard and putting in a banking system that allowed for unlimited paper money to be created at will. Eventually only fiat currency was being used, currency not backed by gold. This was the beginning of the massive overprinting of money.

This massive monetary expansion is the number one reason we continue to see the erosion of the U.S. dollar’s purchasing power. It’s true that increasing the money supply can have short-term benefits such as stimulating consumer spending, but longer term it always results in economic damage such as inflation and a falling dollar. This is also causing China, Russia and other foreign nations to lose confidence in the dollar and its role as a reserve currency.

What this all means is that the value of the U.S. dollar will keep going down long-term. The massive expansion of the U.S. money supply will also cause quite a bit of inflation. How can we protect our wealth as the U.S. dollar loses value? Cash is very bad to hold onto during the dollar decline and strong inflation. This is also true with investments such as CD’s, Treasuries, Saving Bonds, etc. One way to protect your wealth is investing in gold. This can be physical gold such as gold coins. Gold stocks such as Barrick Gold(Symbol ABX)are another option. There are also exchange traded funds like iShares COMEX Gold Trust(Symbol IAU)that reflect the price of gold. Exchange traded funds are traded the same way as regular stocks. There are other possibilities, but gold is a solid choice as a hedge against the decline of the dollar and inflation.

About the Author:
Chief Investment Strategist for Tradingmarkets4u. Over 20 years experience trading the stock market, futures market and options.