The Truth About Money

Did you know the dollars your grandfather used are completely different from the dollars you’re using today?

Today’s dollar may look similar and feel the same, but it’s a totally different animal.

Your grandfather’s dollar was real money. It wasn’t just a piece of paper with a former president’s headshot printed on the front. 

The dollar in your grandfather’s day was backed by gold. One dollar represented 1/35th an ounce of gold held at Fort Knox, where the United States gold reserves are held. 

Having dollars in your pocket was the same as owning gold. $35 dollars in your pocket was the same as owning an ounce of gold.

Gold has been used as money before Jesus Christ walked the earth. Gold is a rare and precious metal. Gold has value because the supply is limited.

Saving money in your grandfather’s generation made sense because it was hoarding gold. “Save your money” was good advice in your grandfather’s time.

After World War II, world leaders met in Bretton Woods, New Jersey to work out a new global money system. The United States pushed for countries to link their currency to the US dollar instead of gold. US government reasoned, since US dollars were convertible to gold, the US dollar was as good as gold. Central banks could bring their US dollars to the US Government and exchange them for gold at any time. This became known as the Bretton Woods Agreement.

Central banks around the world began holding their reserves in US dollars instead of gold.

With the Bretton Woods agreement, each country’s currency was still backed by gold, but through the US dollar (the dollars were convertible to gold).

How old were you on August 15, 1971? Most likely you were just a child or not even born yet. If you care about your personal wealth, you’ll pay attention to the significance of this date.

Richard Nixon was President of the United States at the time. Cell phones and the internet have not yet been invented.

In the evenings, families gathered around the television for news and entertainment.

On the evening of August 15, 1971, President Nixon came on the television to address the nation. He announced he was temporarily ending US dollar convertibility into gold. He assured the nation, “your dollar will be worth just as much tomorrow as it is today.”

Ending US Dollar convertibility into gold meant the US Dollar was no longer backed by gold. 

Because all the world’s currencies were backed by gold via the US dollar (Bretton Woods Agreement), their link to gold was also cut.

Overnight, the global money system changed from being backed by gold to being backed by nothing.  (watch President Nixon’s announcement here) 

According to the Merriam Webster dictionary, the definition of Deception: the act of causing someone to accept as true or valid what is false or invalid.

Richard Nixon deceived the American people on the evening of August 15, 1971.

1. President Nixon announced he was temporarily ending US dollar convertibility to gold. That was a lie. The ending of US Dollar convertibility to gold was permanent.
2. He also told the American people, “your dollar will be worth just as much tomorrow as it is today.” 

Most people believed what their president had told them.

From outward appearances, nothing seemed to change. The dollar looked the same as before. 

You could still use dollars at the corner store to buy beer and groceries.

But really… everything changed. Prior to President Nixon’s announcement, every dollar in your grandfather’s pocket represented 1/35th ounce of gold owned by your grandfather. Having $35 was the same as having an ounce of gold.

Ending US dollar convertibility to gold reduced dollars to nothing more than paper with a former president’s headshot printed on it. 

The people were deceived. Their saving backed by gold were taken away and replaced by paper. 

There were no protests or riots in the streets. People went about their business as if nothing happened. 

For the first time in history, the entire world is using money not backed by anything. We are living in a global experiment with paper money. 

As a result, paying bills, saving for retirement and building wealth get harder and harder each year. 

The reason for this is… your money is literally losing value each year.

The value of money is its ability to buy stuff. The technical term for this is “purchasing power”. 

Before President Nixon ended dollar convertibility to gold, an ounce of gold cost $35 dollars. 

As I write this (July 16, 2020), an ounce of gold cost $1,796. (to check the current price of gold, click here)  

Maybe you’re thinking, wow… the price of gold has gone up a tremendous amount.

It’s common to see the rising price of gold and mistakenly think it has nothing to do with you. You think you’re only a spectator to this phenomenon. 

The truth about the skyrocketing price of gold is…  the value of the dollar (purchasing power) has shrunk a tremendous amount.

You’re not a spectator of the phenomenon. You’re a victim.

The shrinking value of the dollar (purchasing power) has a direct impact on your life. Your paycheck buys less and less. Your savings buys less and less. 

The shrinking paper dollar is why decades of hard work and savings fails to reward you with a comfortable retirement.

Supply and Demand

In economics, there is something called the law of supply and demand.

Simply put… with constant demand, something scarce has high value, something plentiful has lower value. 

Beach front property is more valuable than inland property because it’s scarce. Beachfront property is limited, while inland property is plentiful.

The law of Supply and Demand holds true even for US dollars.

When the US dollar was convertible to gold, the supply of dollars was scarce. The amount of dollars created was restricted to the amount of gold held in the US gold reserves. 

Once President Nixon ended the dollar’s convertibility to gold, the supply of dollars became plentiful. Governments were no longer restricted in the amount of currency they could create. Governments can literally create as much money as they want by pressing a button. New money is created instantly without work, resources or effort.

The supply of dollars is not only plentiful, its UNLIMITED.

Adding more dollars to the existing supply of dollars is like adding water to a pot of chicken soup. As more water is added, the flavor become weaker.

The same is true with the money supply. When the government prints money, money is literally created out of thin air. As more money is added to the money supply, the value of dollar becomes weaker.

There are not many sure bets in the world of finance. But this is one of them… the value of money (purchasing power) will keep on shrinking.

Let me give you four reasons why the value of our dollar will keep weaker and weaker.

Human nature favors printing money. It’s human nature to desire the path of least resistance. 

What would you do if you didn’t have enough money, but you had the ability to print money? Would you cut expenses or print money?

Cutting expenses is painful and involves sacrifice. Printing money is easy and solves the money shortage problem.

The answer is obvious, print more money. 

Whenever the government is short of money, they print more money. It’s easier than raising taxes or cutting expenses. It's the easy choice, it’s human nature.

As the government prints more dollars, the value of your dollars become weaker and weaker.

Politicians favor printing money.

The goal of a politician is getting elected, then re-elected. No one gets elected by promising to cut benefits. Elections are won by promising more benefits. 

More benefits require more money. Raising taxes is not a good for a politician’s career, so… to pay for more benefits, got to print money.

As the government prints more dollars, the value of your dollars become weaker and weaker.

The federal government can’t function without printing money.

The US government spends more than they collect in tax revenues. This shortfall in tax revenue is called the Federal Deficit. 

In 2019, the Federal Deficit was $1 trillion dollars. The US Government needed to print $1 trillion dollars in 2019 in order to pay all its bills and keep the lights on.

As the government prints more dollars, the value of your dollars become weaker and weaker.

Printing money is the default action plan whenever the economy slows down or crisis hits. 

The COVID pandemic is no exception. To help the economy and families, a record amount of stimulus is being unleashed. As of July 2020, congress approved $2.4 trillion in stimulus (on top of the Federal Deficit).

The money for stimulus comes from freshly printed money. 

As the government prints more dollars, the value of your dollars become smaller and smaller.

The graph below is from the Federal Reserve Bank of St. Louis. Notice how much the money supply has grown since the dollar’s convertibility to gold ended. In 2019 it shoots vertically from COVID stimulus. Beginning Feb 2022, the Federal Reserve begins to fight inflation resulting in a slight reduction of money supply. 

Due to human nature and the way the system works, the ballooning money supply will not stop. It’s only going to grow larger and larger.

Does the growth of the money supply trouble you? It should. 

The growth of the money supply causes the dollar’s value (purchasing power) to shrink. This is why the cost of living grows more expensive each year. 

The dollar’s shrinking value directly impacts your standard of living, your retirement and your financial security.

But… there are some steps you can take to protect yourself and even profit.

Protect Yourself and Profit

You can either be a victim or beneficiary of the shrinking dollar. A slight change of habit is the difference between shrinking wealth and wealth that grows almost automatically.

If you follow your grandfather’s advice of “save your money”, you’re going to be a victim. 

You’re accumulating things that are shrinking in value. Your money five years from now will only buy a fraction of the things it can buy today. 

You know this is true because you’ve seen it in your own life. 

It’s possible to use the shrinking dollar to your advantage. The solution is elegant because it’s so simple.

As dollars loses value (purchasing power), more dollars are required to buy things. The result is rising prices.

You can be a beneficiary of the shrinking dollar. The secret is to make rising prices work for you not against you.

The same shrinking dollar that causes the cost of living to rise also causes the price of wealth assets to rise.

Rising prices of groceries and beer is a bad thing, but rising prices of wealth assets in your investment portfolio is a good thing.

Wealth assets are characterized by scarce supply and growing demand. 

Let’s look at gold - one of my favorite wealth assets…

The supply of gold is scarce by nature. The raw material for gold, gold ore, is rare and hard to find. Once it’s found, you have to get it out of the ground. All the easy to access gold ore has already been mined. Current gold mines require digging deep into the earth’s crust. Gold ore is mixed with a lot of dirt and impurities. The gold ore has to be concentrated, then refined. The production of gold takes a large amount of resources, energy and effort.  

While supply is scarce, demand for gold is growing.  Since Donald Trump became President of the United States, he has ended peaceful relations with China. As a result of US trade sanctions, accusations of unfair trade and accusations of spying, China is decoupling its economy from the United States. One area of decoupling is China’s central bank diversifying out of US dollars into gold. 

Other central banks are also following China’s lead and increasing their gold reserves. Strained relations between the US and other countries has created growing demand for gold.

In 1971, before President Nixon cut the tie between the US Dollar and gold, one ounce of gold cost $35. A hundred ounces of gold would have cost $3,500.

Because the value of the dollar (purchasing power) has been steadily shrinking, it now takes over $190,000 to purchase the same one hundred ounces of gold.

But… if back in 1971 you put $3,500 savings into one hundred ounces of gold, it would now be worth more than $190,000. 

As you can see, advice from your grandfather’s era, “save money”, doesn’t hold true in the era of paper money.

To build wealth in the era of paper money, “Don’t hold your savings in shrinking dollars”. That’s like swimming upstream. 

Hold your savings in wealth assets. This way you’re harnessing the government’s uncontrolled money printing to build wealth. Let money printing work for you, not against you.

Even better than holding your savings in wealth assets are Income Producing Wealth Assets.

Income Producing Wealth Assets increase in price as dollars lose value. In addition, they pay you regular paychecks just for owning them. 

You’ll receive these regular paychecks regardless if you’re at home, at the office or at the beach on vacation. 

As you build and grow a collection of Income Producing Wealth Assets, your paychecks from these wealth assets will also grow. 

You can even use the paychecks from your Income Producing Wealth Assets to buy more Income Producing Wealth Assets. This will produce even bigger paychecks which you can use to buy more Income Producing Wealth Assets. This snowball effect of using your money to make more money is called compounding. 

Albert Einstein called compounding the most powerful force in the universe. 

On August 15, 1971, the world switched from a gold backed money system to a paper money system. 

Since going on a paper money system, governments can literally create as much money as they want by pressing a button. New money is created instantly without work, resources or effort.

As the government prints more money, the value of the dollar (purchasing power) shrinks.

Printing money is not going to stop. It’s only going to get worse. It’ the only thing in finance you can count on. 

With Covid and the resulting economic downturn, stimulus (printing money) has reached levels never seen before. The world is being flooded with paper money. 

It’s important not to hold your savings in shrinking dollars. Hold your savings in hard assets with scarce supply and growing demand. Hard assets trend up in price as the value of the dollar shrinks. It’s how to be a beneficiary of the shrinking dollar instead of a victim.

The best way to hold your savings are Income Producing Wealth Assets. These wealth assets have the additional benefit of paying you regular paychecks while you own them.

These paychecks are real money for you to use as you wish. You can use the money to fill up the tank, go out to a nice restaurant, or you could reinvest the money to generate even more money.

Income producing wealth assets is how the rich get richer, even while they sleep.

If you would like details of specific Income Producing Wealth Assets I’m buying with my money, I’m happy to share the details with you.

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1. Details of the Income Producing Wealth Assets in my portfolio.
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