“When confidence goes, the end is very near. It always comes faster than anyone expects and it always seems to be unexpected.” —Bernard of Chartres, 12th-century philosopher and thinker
Working in Ecuador from 1996 to 1998, I figured out that currency and money weren’t the same things. It was taking more and more sucres to buy all the same items at the store, so I decided to open a dollar account instead of leaving my money in sucres. Every month, I took my salary to another bank, and exchanged them for dollars, and every month, my dollars would be worth more and more in sucres. It was great for me! It seemed like I was making money just by that little switcheroo, plus interest. It got so bad that a year after I left Ecuador, the President Jamil Mahuad started to devalue the sucre and transition to the U.S. dollar. It wouldn’t be until I was 45 years old, though, that I learned how the financial games truly worked, and I’m still learning.
If you’ve traveled internationally to developing nations, you’ve been pleasantly surprised by how cheap everything seems. In Ecuador, I could buy a complete lunch for a dollar back then or an Alpaca sweater for $3 to $5. More recently, in Malaysia, I had all kinds of medical testing done for super cheap too. It’s great for those of us with dollars, but have you stopped to think about why this is the case? It’s a form of imperialism. The U.S. is an empire, and the dollar is its number one export. Nations can use dollars to trade around the world, but if they don’t follow the U.S. rules, they get punished hard. What I didn’t understand long ago about Ecuador…it was grappling with a toxic mix of massive fiscal deficit and high inflation.
In 1999, Ecuador’s annual inflation hit 60% and the sucre lost 67% against the U.S. dollar in that year alone. This was a direct result of excessive borrowing, corruption, and a drop in oil prices, which was Ecuador’s main export. Indirectly, however, the U.S. played a role by strengthening the U.S. dollar during the late 1990s, and consuming less oil after the 1997 Asian financial crisis. It contributed to a price drop in oil which severely impacted the little country of Ecuador. Any small country that was heavily reliant on oil exports for earnings, got caught in the crossfire. Actually, the majority of currency collapses over the last century have been a direct result of U.S. monetary decisions, trade policies, IMF influence, sanctions, military actions, and diplomatic pressure. Here’s a summary:
German Papiermark (1919-23) – After World War I, the U.S. heavily influenced the Treaty of Versailles (1919), pushing reparations that crippled Germany’s economy. This led to hyperinflation (1 trillion marks per dollar).
Chinese Yuan (Old) (1946-49) – During the Chinese Civil War, the U.S. provided billions in military and financial aid to the Nationalist government (KMT). While the U.S. was propping up a corrupt regime, China experienced hyperinflation (10,000%+) and economic chaos.
Argentine Peso (1975 and 1983-89) – High U.S. interest rates under Volcker (peaking 20% in 1981) coupled with Argentina’s dollar-denominated debt costs, triggered inflation (300% in 1975, 1,000%+ by 1989).
Brazilian Cruzado (1986-89) – Volcker-era high interest rates increased Brazil’s debt burden also, leading to hyperinflation (80% monthly).
Peruvian Inti (1985-90) – In the 1980s, U.S. interest rates raised Peru’s debt costs just like it did in Brazil and Argentina. USA-IMF reforms demanded cuts that clashed with local politics, fueling hyperinflation (7.649% in 1990).
Yugoslav Dinar (1992-94) – USA-NATO sanctions and involvement in the Yugoslav Wars (Bosnia conflict) pushed inflation to 5 quadrillion percent. The new dinar came in 1994, and then foreign currencies (e.g. Deutsche Mark).
Russian Ruble (1992-98) – Market reforms (again from the USA-IMF) and a strong dollar policy in the 1990s strained Russia’s economy. The 1998 default followed U.S. investment pullouts, indirectly destabilizing it. The new ruble came in 1998 at 1000:1.
Zimbabwean Dollar (2000-2009) – U.S. sanctions targeting Mugabe’s regime isolated Zimbabwe, worsening economic decline amid hyperinflation (79.6 billion monthly).
Venezuelan Bolivar (2018-ongoing) – U.S. sanctioned oil exports, accelerating hyperinflation (1.7 million percent in 2018). Dollar dominance indirectly pressured the bolivar. People moved to the U.S. dollar and crypto.
Maybe you’re thinking, That’s just nine nations out of 195 in the world, Wendy! Yes, but the other 98.2% of nations and us Americans have experienced currency devaluation, too. It’s sort-of like how kids grow up without you noticing it happen, or how you can boil a frog slowly and it will never jump out of the pot. To determine how much devaluation we have experienced over the last 100 years, we only need to measure its loss of purchasing power, typically calculated using inflation data from the Consumer Price Index (CPI). This data from the U.S. Bureau of Labor Statistics (BLS) is available to us, and reflects how much more a basket of goods costs today compared to 1925, expressed as a percentage loss in value.
So let’s do the math. We have hard data about the CPI for 1925 and 2023, and for 2024-2025, we will need to assume 3% inflation per year. Since the CPI in 1925 was 17.5, and the CPI in 2023 was 304.7, I’m projecting it to be around 323.25 by the end of this year. Now we divide CPI 2025 by CPI 1925 and get 18.47. This means that in 1925, $1 bought what $18.47 buys today. In other words, if you had $18.47 in 1925, it would be worth $1 in today’s money. Now, divide $1 by $18.47 (the answer is $0.054) and calculate the devaluation percentage [$1 minus $0.054 divided by $1 (or $1 – $0.054 / $1)]. What you end up with is 0.946 or 94.6 percent. The U.S. dollar will have lost approximately 94.6% of its purchasing power, officially, by the end of this year.
To determine how much gold (real money) has multiplied against the dollar since 1925, we need to compare the price of gold in 1925 to its price today and calculate the factor of increase. In 1925, the price of gold was fixed at approximately $20 per ounce under the gold standard, which defined the dollar’s value as 1/20th of an ounce of gold. As of today, March 19, the price of gold is approximately $3050. Today’s price divided by the 1925 price gives us a multiplication factor of 152.5. So the price of gold has multiplied by approximately 152.5 times against the dollar since 1925. In other words, it takes about 152.5 times more dollars to buy an ounce of gold today than it did in 1925. If you had $20 worth of gold in 1925, it would be worth approximately $3050 today.
We work to make money to set us free, right? Money helps us, a lot. So the moral of this story is to see the forest for the trees, or money for currency, by being vigilant and using our analogical minds. One can only gain a deeper understanding of something by comparing it to something else (see my previous post Albert Einstein’s Little Secret). Against other currencies that are also being devalued, the dollar appears to be stable, but against gold, you can see it is not. Gold is going up because certain vigilant people are waking up to the reality of fiat, seeing the forest for the trees. What used to be an IOU for physical gold, is now only backed by the world’s faith and credit in a huge pile of debt. Another 5.4% and the dollar loses 100% of its value. Capeesh?
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