Failing to Learn From History

From Stansberry & Associates, The S&A Digest:

At the beginning of the American War of Independence, the Continental Congress decided to print money, the Continental. The value was supposed to be based on the Spanish dollar, the famous "pieces of eight," which equaled eight silver Spanish reales.


The Continental Congress intended on printing 2 million Continentals. It soon realized it didn't have enough to pay its debts (sound familiar?). So by 1779, the congress had printed more than 242 million Continentals. The British waged a counterfeiting campaign, compounding the problem. By the time the Continental Congress stopped printing them in 1781, it took $168 worth of Continentals to buy a $1 silver coin. Hence the old saying, "Not worth a Continental."

The Spirit of the Continental lives on in today's U.S. dollar... The Federal Reserve came about in 1913, largely as a political response to the Panic of 1907. Among the Fed's stated goals today are "conducting monetary policy... in pursuit of maximum employment, stable prices, and moderate long-term interest rates," and "maintaining the stability of the financial system."

I'll let you judge how stable the financial system is and how the Fed's doing at maintaining "maximum employment, stable prices, and moderate long-term interest rates." But the monetary policy? The Fed has done quite a number on your money: What cost $1 in 1913 now costs more than $21. What cost $1 in 2009 would have cost about $0.05 in 1913. Hence, the Federal Reserve has reduced the value of the U.S. dollar by approximately 95% during its 97-year tenure.

And the Fed's not done yet! Not by a long shot. In fact, Tim Geithner told the whole world yesterday the devaluation of the U.S. dollar is an absolute certainty now. He didn't put it in so many words. They never do. But according to Reuters, he said, "It is very important for people to understand that the United States of America, and no country around the world, can devalue its way to prosperity, to [be] competitive. It is not a viable, feasible strategy and we will not engage in it."

Geither sounds a lot like a child denying the inevitable. I learned a lot about this sort of thing growing up: "We will not devalue the currency" lives in my mind next to, "I'm not getting in that bathtub," "I'm not eating those vegetables," and perhaps most memorable of all for me, "I'm not going to bed now, because I'm not tired." Every time I uttered that last one, I was sawing logs within minutes.

Maybe after its rapid rise, the gold price is in for some type of correction. I don't know, and I don't care. The U.S. Treasury Secretary has virtually guaranteed gold will increase in value in the coming years, how can you afford not to own it? The government is manipulating the gold price; and it's determined to shove it straight up.