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Dollar drops 96 percent

Heller0425With central banks in France and the Netherlands repatriating U.S. dollars in exchange for gold during the 1960s into the beginning of the next decade, the U.S. government was suffering a run on its gold reserves.

To halt this trend, on Aug. 15, 1971, then U.S. President Richard Nixon announced that the U.S. government was “temporarily” closing the gold exchange window. More than 45 years later, this temporary halt is still in effect.

What has since happened to the value of the U.S. dollar?

As measured against the Swiss franc currency, the dollar has sunk 77 percent since 1971. Compared to an ounce of gold, it is worse – down more than 96 percent!

Just before the turn of the century it was revealed that the Swiss National Bank had gold reserves at current market prices equal to about four times its outstanding currency. After that announcement, the SNB quietly sold about half of its gold reserves, still leaving it with ample holdings – though no parties can turn in Swiss currency to demand gold. This may help explain why the U.S. dollar has declined so much versus the Swiss franc currency.

Where America was previously the world’s largest creditor nation, by 1985 the U.S. Commerce Department announced that the country had become a net debtor. Since then, the U.S. has become the world’s largest debtor nation.

Up to 1970, America almost always experienced a sizeable trade surplus with the rest of the world. In the 46 years since, the country has had a net trade deficit every year except for 1972 and 1974. The cumulative trade deficit from 1971 to 1998 was $2 trillion. From 1999 to 2016, the trade deficit soared to a cumulative $12 trillion.

Few people understand the size of this trade deficit. Egon von Greyerz, founder and managing partner of Matterhorn Asset Management AG, calculated that the average price of gold from 1999 through 2016 was $819.

So, how much is the $12 trillion in trade deficits from 1999 through 2016 as measured in ounces of gold? The $12 trillion divided by $819 average price comes to more than 14.6 billion ounces of gold.

Perhaps the best estimate of how much gold has been mined globally throughout history only comes to about 5.5 billion ounces. Therefore, the U.S. trade deficits from 1999 through 2016 is over 2.6 times the total amount of gold mined worldwide over the past more than 6,000 years.

Obviously, the U.S. economy has not yet been destroyed with these massive amounts of trade deficits. Why not?

There are two major factors why the dollar has not totally collapsed. First, foreigners now hold massive quantities of U.S. currency and U.S. Treasury debt. Although no official figures are available it looks like the current amount in foreign government, central bank, sovereign fund, and private hands is roughly $11-$12 trillion.

Second, while the U.S. has run huge trade deficits, it has run capital surpluses for most of the time since 1971. Instead of only buying goods and services, non-U.S. parties are sending dollars back to the U.S. to purchase American real estate and ownership of American companies.

This trend of rising American debt is not sustainable. The U.S. Commerce Department reports that the current annual Gross Domestic Product is around $18 trillion. Compare that to the amount of debt and unfunded liabilities of the U.S. government all by itself, ignoring the debts of subsidiary governments and the private sector.

In its September 30, 2016 financial statements (available at https://www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/16frusg/FinancialStatements_2016.pdf) the federal government on page 58 lists liabilities, including debt, as of that date of $22.762 trillion. However, these financial statements are not prepared using the same accounting principles required in the private sector. The balance sheet does not include any amount for the net present value of unfunded liabilities as of Sept. 30, 2016, for future payments for Social Security and Medicare.

On pages 60 and 61 of these financial statements is a 75-year projection of the net present liabilities for these two programs as of Sept. 30, 2016 – totaling $46.7 trillion in excess of the $22.762 trillion on the balance sheet. However, this figure is deceptive as it incorporates the impact of future tax collections and increases in the liabilities.

To get the real total of unfunded liabilities as of six months ago, it is necessary to exclude the future tax collections and increases to the liabilities. It turns out that the government expects to collect far more taxes in the future than it expects the liabilities to increase. While it is not possible from the limited details available in these financial statements to calculate exactly how much is owed as of Sept. 30, 2016, I used employment information from the Bureau of Labor Statistics to come up with a range of the actual net present value of unfunded Social Security and Medicare liabilities as of that date – somewhere between $67 trillion and $87 trillion. When added to the nearly $23 trillion of liabilities on the balance sheet that means that the federal government owed at least $90 trillion and perhaps as much as $110 trillion as of Sept. 30, 2016.

With the federal government that much in the hole already, and going deeper into debt and unfunded liabilities on the order of $500 billion or more every month, how safe to you think the $23 trillion of private retirement account assets (including precious metals IRAs) are from seizure by the government? Just ask the people who used to own private retirement account assets in countries like Argentina, Hungary, Poland, Spain, Cyprus and elsewhere before the government took over those assets.

Do you really want to run to own physical gold and silver in a precious metals IRA account and run the risk of the government or a failing bank suddenly taking these assets?

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He was also honored by the Numismatic Literary Guild in 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

 

This article was originally printed in Numismatic News Express. >> Subscribe today

 

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