For quite some time now, the value of the US. Dollar has been declining, which has had a foreseeable impact upon the price of gold and silver. But why exactly has the US. Dollar been declining. Will it continue to do so and should this be something to be concerned about?

Today there are some serious inflationary issues facing the US economy. We believe the dollar will soon come under severe pressure possibly within the next year. This brings us to the question: why has the US. Government let the value of the US. Dollar fall so much?

In response this question we will need to take a look back into history. Since 1944, following the well-known summit of the global central bankers at Bretton Woods, New Hampshire it was determined that the US. Dollar would become the world's reserve currency.

The standing for the dollar was very important because in effect, this meant that nearly every country in the world would be trading with one another using dollars as the medium of exchange. Additionally, all the central bankers came to an agreement that a gold standard would be adopted by the US Government. The US. Dollar would now be backed by 10% gold. Furthermore its value would be anchored to a tangible asset again.
With the gold standard in place, any country that held dollars could exchange those dollars at "The Gold Counter" for physical gold at the rate of $35 per ounce. For the next 25 years the Bretton Woods system worked well, with the US Government normally exhibiting responsible currency management. Spending usually was within budget while borrowing was limited. The supply of money would grow in size, but no more than at the same rate as the underlying growth rate of GDP.

But then, the acceleration of the Vietnam War in the 1960s came. Spending for the military and unpopular war soared causing the Government to go deeply into debt. To fund the war, money needed to be borrowed; due to this the supply of US money in global circulation rose drastically. Several Countries that were holding large surpluses of US dollars began exchanging them into physical gold.

This led to a large depletion of US. gold reserves from countries like France. France was exchanging its excess dollars at the Gold Counter at a frenzied rate.  Because of the above actions that France and other European countries did at that time, the system began to buckle, while physical gold transfers hastily accelerated.

Shocked at the rapidly depleting supply of US gold reserves and discouraged at not being able to successfully finance the Vietnam War, President Nixon freed the dollar from the gold standard in 1971. Thus freeing the dollar from its tangible anchor and allowing massive borrowing and debt expansion. Soon thereafter the money supply within the system shot to the moon.

During the 70’s inflation rose sharply, feed by the escalation of wages and commodity prices. Oil peaked at $40 a barrel in 1980. Gold reached its all time peak of $800 an ounce. Silver also hit its all time peak of $50.00 per ounce. Seen on the front pages of every newspaper in America the headlines spread fear that the US dollar is coming very close to collapsing.

Then a man far ahead of his time the visionary Paul Volcker was appointed to manage the Federal Reserve. Immediately his bold and controversial moves saw him raising interest rates to almost 20 percent to force the out of control inflation within the system to reverse course. Defying many skeptics at the time, he succeeded as price inflation was again under control. Prices stayed relatively stable for the next 20 years.

Unfortunately the same cannot be said for the US money supply. The amount of US dollars inside the international system has continued to increase quickly. Today the world is overflowing with US dollars.  This to some extent explains the sharp rise in asset and commodity prices.

Holders of US dollars are converting them for real assets. Nations such as China, Japan, India, as well as OPEC members are accumulating US dollars by the trillions. It remains to be seen just how long this will continue as the dollar is being constantly destroyed by the growing money supply, thanks to the fed and QE2. Also the trade and budget deficits and mounting national debt are causing the US to climb over $14.5 trillion.

With the declining US dollar purchasing power overseas has also fallen significantly. Within the United States, inflation is rising while we’re seeing food and oil prices going up.  However the true picture has been clouded by the fall in value of the dollar.

So what does all of this information mean to you? Simply it means that your Dollars are buying less now than ever before. It is not the price of goods and services going up causing you to pay more rather it is the value of the dollars purchasing power going down causing the price you’re paying to go up.

What you should consider is taking concrete steps to protect your purchasing power by hedging against inflation. Buy Gold or Silver.  The Dollar is nothing more than worthless paper, not even worth the 6 cents it costs to print it.  However gold and silver are true stores of value. As the dollar’s purchasing power keeps dropping the value of gold and silver will keep climbing. During these times of economic crises it is best to keep hard assets (gold and silver) that hold and increase in value rather than holding dollars that will keep losing value by the day with no interest sitting in a bank.