July 5, 2022

Will The Dollar Go The Way Of The Continental?

Throughout our financial history, the United States has operated under many currencies. Each currency reflected the different economic conditions of the country.

Our first currency was the Continental. Today we would call this paper currency a tax anticipation note. The Continental relied on the “anticipated” read “hoped for” taxes to be collected. And because the exact amount of those taxes was not easy to predict. It was uncertain just what the Continental would be worth.

The Continental lasted only 15 years before being cast into the dust bin of history.

Gold and Silver coins. After the Continental, the US Treasury introduced a more traditional form of currency. With a history that dates back to Roman times, coins made from precious metals always retain their core value. They have the intrinsic worth of their weight in gold or silver.

Aside from some specialty currencies introduced in the mid-19th century around the Civil War, those gold and silver coins and gold and silver certificates (what we called dollars) remained our dominant form of exchange until 1933.

That’s when Franklin Roosevelt took America off the gold standard and made it illegal for Americans to own the yellow metal.

As a practical matter, they were making gold coins, and gold and silver certificates illegal to own had little impact on average America. For the prior 20 years, many had been using the Federal Reserve Note. And it was a reasonably seamless transition from a silver certificate to Federal Reserve Note.

For 155 years, the US Dollar, in its various forms: from the gold-backed coin to full faith and credit note, the US Dollar has been the most stable of all the world currencies. And it has been the fundamental policy of the Federal Reserve and the US Treasury to defend the Dollar’s Stability.

However, in March of 2020, they abandoned that fundamental policy.

Today the United States has gone back to managing its currency as it did during the time of the Continental. It is printing money in the hopes of sufficient underlying revenue to support its value.

For 24 months, the Federal Reserve expanded the money supply by 500%. From a full measure of M1 money from $4 Trillion to the current M1 position of $20 trillion.

This “money printing” is the kind of expansion to the money supply we’ve only seen in countries like Germany during the Weimar Republic just before World War II or Venezuela today.

Each time it’s been tried, it has resulted in extreme hyperinflation.

So am I saying we will end up like Germany’s Weimar Republic or Venezuela?

No, I don’t think so. Our blessings include

  • Abundant resources.
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  • An educated and capable workforce.
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  • The leading edge of technology.
  •  

We have the tools to bring this economic ship back in balance. But to recover, we must produce. Unleash American Industry. Just like during the Continental, our goal needs to enhance the income side of our Nation’s Balance Sheet.

The Federal Government must provide Corporate and Private Enterprises the incentives to close the revenue gap created by this currency printing.

Government must recognize that its expansion of the money supply directly contributed to this current bout of inflation.

The answer to this inflation lies before us. If this government empowers the private sector through less regulation, less taxation, and fewer mandates, we could work our way out of this mess.

Otherwise, I’m afraid today’s Dollar may go the way of the Continental.

Economic News

There is increasing evidence that President Biden will not get the extra Saudi Arabian oil he’s after. Trade publication Oil Price dot com reports this morning that the Saudis are reluctant to risk their growing relationship with Russia to help the Americans.

Biden is scheduled to visit the Kingdom for a little over a week. And it’s understood by most that Biden’s principal objective would be to get additional oil to ease the gas prices here in the US. It all seems part of the President’s overall strategy of reducing domestic supplies while going hat in hand to ask for the foreign product.

In overnight economic news, China reports a big jump in their Purchasing Managers Index, as the Chinese continue to recover from that Covid Lock-down.

In a couple of hours, we will get the latest report on Factory Orders for the US. This is a report that’s frankly been all over the place, reporting one month's good gains, the next month barely increasing at all. This morning Wall Street is looking for a slight improvement in Factory Orders.

We’ll have to see if that’s the case. Many of these basic industry reports have been turning negative recently.

There is only one company reporting earnings today. Health Care Trust Of America, a Hospital REIT, has just reported solid earnings, right in line with expectations.

Have a great day!

David