110 Years of Devaluation

Chart of the Week #26

In yesterday's essay, I explained why I believe dollar devaluation isn't just likely—it's inevitable. If you haven't read it yet, you can catch up here.

While I emphasized this won't happen overnight, it will be as dramatic as the dollar's precipitous decline following Nixon's abandonment of the gold standard. The only difference is: we won't have the luxury of decades this time around.

Given this backdrop, I thought it fitting that this week's Chart of the Week also focuses on the dollar's devaluation. Except today's chart provides a sobering perspective that goes well beyond the early 1970s. It tracks the purchasing power of $100 all the way back to 1913—a year I chose quite deliberately. That's when the Federal Reserve Act was passed by Congress and signed into law by President Wilson, setting the stage for what would become a century-long erosion of the dollar’s value.

Just look at that long, painful decline. Since the Fed’s establishment in 1913, the U.S. dollar has lost a staggering 97% of its purchasing power.

To put this in perspective, the purchasing power of $100 in 1913 has shrunk to just $3.20 today. In other words, to buy what your great-grandparents could have gotten for $100 back then, you’d need around $3,100 today. And that’s assuming you trust the official government figures—the true picture might be even worse.

The culprits behind this decline are clear. Even before 1971, when Nixon finally severed the dollar's tie to gold, the Fed and government policies had been steadily eroding the dollar's value. Through decades of artificially low interest rates, expanded credit, and reduced gold reserve requirements, they set the stage for what was to come.

The graph above captures a history of decay, but those in power aren’t done yet.

Regards,

Lau Vegys