In 2013, we Americans will commemorate a century of wealth destruction in the United States – the Federal Reserve will be 100 years old. In 1913, the Federal Reserve Act became law – granting sole authority to the Federal Reserve to “issue legal tender.” Armed with its new power and its good intentions, the Fed embarked on a 98-year process of currency debasement. That’s not what the Fed set out to do; it’s just what it did do.
In the early days of the Federal Reserve, this monetary authority enjoyed the support of a gold standard. Few Americans doubted that the Fed’s new greenbacks would be as good as gold. As such, gold coinage and paper dollars intermingled effortlessly in the US economy for most of the Fed’s first two decades.
But as the wheels of progress roared ahead, America’s “hard money” coinage disappeared and soft promises took its place – soft promises and lots of chatter about hard money. As it turns out, chattering about hard money does not preserve wealth as well as hard money itself.
The purchasing power of a one dollar bill has plummeted more than 95% since the Federal Reserve first began printing its legal tender in 1914. Although the dollar’s epic decline began glacially, it has gathered luge-like momentum.