The U.S. Dollar Has Been Devaluated Without Our Knowledge

The cost of gasoline at the pump today is $1.75 in 2002 dollars! That is what it would cost at least if the dollar hadn't been devalued. This does not include any adjustment for inflation which is usually the main factor which erodes the value of the dollar. I am only including the devaluation of the dollar in relation to other world currencies such as the Euro or Canadian dollar in this price conversion.

Let Me Explain

In January to February 2002 before the dollar was devalued it could buy $1.60 in Canadian dollars or 1.15 Euros per U.S. Dollar. Today six years after the devaluation of the dollar began we cannot buy $1 Canadian and have to spend $1.55 or more to buy 1 Euro. If the dollar stayed on parity with other nations currency based on the pre-devaluation exchange rate, gasoline would only cost $1.75 U.S. dollars. Subtract out inflation and you would have gas at $1.33 a gallon for regular grade based on 2002 dollars.

Gasoline has not been the main cause of our economic problems. Rather it is the devaluation of the U.S. dollar. The cost of housing and other real property has gone up only modestly during the same period if you back out the dollar's devaluation as well. A home costing $500,000 today would actually cost only $125,000 in 2002 dollars not even counting inflation which would bring it down to $95,000. However inflation is normal and true for all currencies. Therefore, if it weren't for the devaluation of the dollar a home would still be a more affordable $125,000 for most people.

You may ask what devaluation?

There was no devaluation announced. Our incomes weren't adjusted for devaluation the way they are in South America or other Countries announcing a planned devaluation. The fact is that our devaluation was a de facto devaluation. Not announced but in effect it happened.

What Is The Cause Of This Devaluation?

Whenever, you flood the market by printing too much money, the value of that currency goes down in relation to other currencies. Keeping interest rates artificially low will cause this as it increases the money in circulation since it is cheap to borrow. Our European allies have complained about our policy of ultra low interest rates many times in many venues.

We have spent well over a trillion dollars on the wars in Iraq and Afghanistan. That has put a tremendous amount of dollars in circulation. In perspective, a trillion seconds ago Mammoths roamed the Earth and Geico could actually have been used by cavemen, had the company existed 37,000 years ago. The dollar's fall coincides with these wars and the tremendous war budgets required for this endeavor.

Which Came First?

Did the high cost of gasoline cause the bad economy or did the falling dollar cause the high cost of gasoline? My view of this is that the later is in fact what happened. The softened dollar caused the cost of gasoline to soar in relation to U.S. currency. This lead to additional problems in the economy for oil consumers.

The exception is the wealth of oil company executives and profits of the gasoline companies themselves. Last quarter Exxon reported $9.9 billion dollars in net income. That is $340 for every living American, new born to seniors included. Mobile increased their earnings by 37% during the same quarter.

What Can We Do To Fix This Problem?

We can save the dollar from further decline and perhaps strengthen it by reducing our government spending significantly. 1) The expenses of the current wars must be reduced or eliminated as soon as possible. 2) Tax cuts and rebates seem to help us. Unfortunately they just increase the amount of money in circulation and cost us more by reducing the buying power of the dollar. We get more dollars but they buy less. This is smoke and mirrors. 3) We must reduce the spending of the government for special interest groups and ear marks. 4) Interest rates should be moved up to a level similar to those of our European allies. Cheap interest rates generate cheap and overabundant money. 5) Other government spending must be curtailed and profiteering by large corporations must be controlled. 6) Corporations must be taxed fairly. Some corporations pay zero tax yet make record profits via loopholes. These loopholes must be controlled.

Only with these measures and others can we hope to regain the strong dollar we once had with associated cost drops for commodities.