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How has U.S. government spending impacted the value of the Dollar?

David Morgan, Richard Russell, Mary Anne Aden, Adrian Day
January 6, 2004
Video Transcript

Female Host: Today, with the gold standard at a distant memory. U.S. spending predictably has spiraled wildly out of control, but who pays for this spending. The answer: you do, because as the world has been flooded with more and more paper dollars since 1971, the dollars you earn and the dollars you saved are worth less and less. The dollars purchasing power has declined at a staggering rate. Gold on the other hand, over the same period has not only held its purchasing power, its purchasing power has actually increased. To illustrate this point, we turn to our financial reporter.

Male Host: I think this will come as quite a surprise to our viewers. In 1971, a new mustang standard coupe could be purchased for 83 ounces of gold or the equivalent of approximately $2,900. Now today, that same 83 ounces of gold, could not only purchase a standard coupe, but two premium fully loaded, top of the line mustangs with enough money left over to buy gasoline for both cars, even at today's prices for several years to come.

Female Host: So coming full circle, we can see the President's decision in 1971, to leave the gold standard behind, has contributed to a dramatic decline in the purchasing power of the dollar. A dollar no longer backed by gold, but in reality by you and your taxes.

David Morgan: What he's really saying is all the debt of the United States, up until August of 1971, was backed by this pile of gold here, because everyone accepts it as money and has for 5,000 years. We don't have nearly the amount of gold compared to the amount of paper we put out in the world. France called our bluff. So because they called our bluff, we cancelled our agreement, we reneged on our contract. Now what we're going to use for everybody that has a demand on the United States we're going to put it on the burden on the taxpayers of the United States. So if you have a debt against the United States, we're going to make our workers pay for it from now on. That's what he really said, but very few people understand that. They're wondering what does Mr. Morgan mean here. I mean exactly what I said. The productive capacity is the government's ability to tax you to be able to pay for money that they spent that they didn't earn. If that doesn't wake you up right now, nothing I say in this interview will.

Richard Russell: When the stock market topped out and turned bearish the end of 1999-2000, at that time I said, "I don't think the Fed is going to take it. I think they're going to fight the deflation tooth and nail. It's a question of inflate or die. The country can't take deflation." and I repeated that over and over, "It's a question of inflate or die." That's exactly where we are today.

Mary Anne Aden: An ocean of liquidity came into the monetary system, which we are now seeing in rising inflation. This has always been the cause of inflation and always will be. So we have inflation rising and this is going hand-in-hand with this "inflate or die" if you will scenario, but the end result of that is that this is an environment just ripe for gold, because gold is the ultimate inflation hedge and it does very well. In fact, it tends to lead inflation.

Richard Russell: People who are saving dollars, it's going to be a tragedy. Those dollars are going to be a losing purchasing power. People who have been able to save their whole lives are going to find out, what I found out with my AGI insurance policy, it's not worth anything now. The real insurance policy is gold.

Michael Carabini: When investors are looking at their portfolio, they're looking in terms of dollars, their stocks, their bonds, and when the dollar loses it's purchasing power that means also their bonds and their stocks are really eroding in value. So they're at risk; at risk in losing their wealth. What gold offers is something that typically gains value in times when the dollar is eroding.

Adrian Day: The dollar seems to me is heading on a long-term slide that's not unlike the long-term decline that we saw in the British pound, frankly, in the beginning of the middle part of the last century. The U.S. dollar has been a well-reserved currency, in fact I know we don't call it that, but that's what it is. That's basically the reason, in my mind, why the U.S. has been able to maintain this enormous deficit for so long.

Mike Maroney: This has all been an experiment for the last 38 plus years, this fiat currency experiment. The interesting thing about this experiment is nobody really knew what the inevitable outcome would be or nobody even knew if it would work. I think people are starting to realize it's broken. Once it's broken it's very difficult to fix and based on the fact that we're trying to fix debt by trying to induce people to increase their debt, it really just doesn't make sense. One of these days, this whole system is going to blow up and in that type of scenario, where will you go to protect yourself?

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