The 3 cent dollar!
Why $2,000/oz. gold is logical
By David Bradshaw, Editor RMP
Apr 23, 2007

This is a chart of the U.S. dollar between 1915 and today.

Do you still feel good about having your life savings in dollars? I hope not.

"The dollar is close to breaking through support levels and if it does that then it could have significant implications for all markets, and certainly for the Treasury market in terms of inflation," Bill Gross of PIMCO told Bloomberg television today.

Eighteen years ago Swiss America CEO Craig Smith and I traveled the nation presenting "Economic Solutions" seminars using a chart of the dollar to open the event. Even back then attendees jaws dropped when they discovered a U.S. "dollar" was really only worth about 14 cents in real buying power.

Between 1989 and 2007, the dollar has shrunk to just 3 cents! Could it fall to just one penny in the next 5-10 years? Read on and judge for yourself.

Historically a U.S. "dollar" was defined by content, not by image, or symbolism alone. Truth is, today's "dollar" is really nothing more than a popular symbol for the tangible substances which it once proudly represented: gold and silver.

Substance vs. Symbolism

A real U.S. dollar is defined as 1/20 ounce of gold, or about an ounce of silver.

But starting in 1913, the U.S. Treasury and Federal Reserve began a slow process of redefining the "dollar" -- from representing a weight measurement of pure precious metals -- to representing public confidence in the U.S. government.

The result: today's "dollar" retains a mere 3 cents of its original buying power in relation to gold. Three pennies! Stated in reverse, 1/20 of an ounce of gold (at $650/oz.) will cost you $32.50 today, instead of just $1, as it did 75 years ago. Sad, but true.

This helps explain why the Federal Reserve's latest statement (3-21-07) admits the Fed continues be concerned about rising inflation (which, by the way, is largely the result of their own overprinting of "dollars" starting in 2001).

Yes, the buck's buying power has shrunken by over 30%, just in the last five years, but the ongoing decline of our gold-less U.S. "dollar" now spans over four generations as the chart above illustrates.

The true value of a paper "dollar" is now being defined by the world's waning confidence in America's ability to repay our deficits, debt and public entitlement obligations.

A Wake Up Call!

America's own head accountant David Walker is now traveling the nation with his "Wake Up Call" tour warning Americans that we're facing, "a growing fiscal cancer, a tsunami of spending." Walker hopes to gain public support in order to force politicians to do something now, rather than just kicking the can down the road, because "our present system is unsustainable."

"Anything that's healthy is reproduceable" is a truism, both in the natural world and in the financial world. Conversely, anything that's unhealthy (whether it be animal, vegetable, mineral... or currency) cannot produce healthy offspring.

Virtually every nation on earth is slowly dumping dollars in favor of more stable, healthy currencies, like gold.

Unhealthy U.S. dollars are even being shunned by central bankers, because they know what happens to all confidence-based currencies when that confidence fails. In financial terms it is called a panic.

Given today's increasingly transparent financial world, I ask you; does the monetary symbolism of today's paper "dollar" stand a chance of triumphing over the substance of gold and silver?

If you think so, stick with your paper "dollars", but don't complain when a loaf of bread costs $10 or $20 one day.

If you think not, we recommend converting a good portion of your paper dollars into gold, pronto.

Given the dollar's 100-year track record of decline, it's very plausable that the dollar will continue falling from 3 cents to just a single penny. At that point instead of costing $32.50 to buy 1/20 ounce of gold, it would cost $100 per 1/20 ounce of gold... which equates to $2,000 per ounce gold!

Sound logical? Or crazy? Do the math yourself. If you're still not convinced, please review our lead story from the latest Real Money Perspectives magazine, "The Future of Gold" Who Expects Four-Digit Gold... and Why!, which features over thirty gold experts with an average gold price target of $2,100/oz.

"Over the last century the U.S. dollar has been transformed from an 'IOU gold' into an 'IOU Nothing,'" according to John Exter, former Fed economist. If you can remain optimistic about the dollar's future, I congratulate you. Your faith in the tinkering of men with "IOU nothing" money far surpasses mine, which is limited to faith in God up above... and faith in real money, gold and silver, here below. -db

For further study:
"Rediscovering Gold: Substance Over Symbolism" by Craig R. Smith (8/01)
"Why the dollar is in trouble" by Craig R. Smith (2/07)
"Why the sudden dollar plunge? By John Stepek, MoneyWeek (10/06)

Special Offer: To help you better understand why gold's future is so bright, Swiss America invites you to review their new "Rare Opportunity" booklet and "The Future of Gold" 2007 magazine which are yours FREE, simply register here... or call toll-free 800-289-2646. Find out why gold is now the buy of a generation!
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.

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