Runaway Inflation: Devaluation of the US dollar
This week, as the Federal Reserve will most likely raise rates in reaction to what seems to be slight economic growth, China has reiterated its position of weaning itself off the US dollar.
The Fed will once again guess what interest rates should be. That, coupled with our growing deficit and continued talk in Congress about raising the debt ceiling because of our ever expanding (1.1 trillion dollar) budget, is weakening faith in our fiat money system.
The effects of this could be catastrophic to what is left of the middle class here in the US and the devaluation of the US dollar has already been happening right under our noses.
If you take for example Jamaica, a country with which I am very familiar, the dollar has undergone a complete debasement. Inflation over the past 20 years has happened beyond rapidly. My family being native to Jamaica makes seeing what happens extremely clear.
To put it simply, the four thousand dollars my grandmother gave me in 1992 is now currently worth one thousand fifty Jamaican dollars.
To me this loss was negligible. Four thousand Jamaican dollars in 1992, with an exchange rate of 1 USD to 32 JD, was roughly 125 US dollars.
Fast forward to 2015 the exchange rate is 1 USD to 120 JD which made my net savings from doing the responsible thing and saving the gift bestowed by my grandmother a grand total of 33 US dollars.
As I said, this just highlights the problem. Imagine a family living check to check, saving the bare minimum they need to retire say 10% per check. By 1992, amassing 4 million Jamaican dollars (125,000 US dollars) and today realizing their buying power with their savings is only that of 32,000 US dollars. Also, juxtaposing their loss of wealth is the higher cost of living and goods due to runaway inflation.
The effect on that family would be and is devastating.
The middle class in Jamaica is all but gone.
The country moved from the gold backed pound, which made it impossible for the government to inflate prices by expanding the money supply, to its fiat money system with the Bank of Jamaica responsible for the money supply and setting of interest rates.
This is where we are headed. A devaluation of the US dollar will make our savings obsolete. But that may be the least of what it does.
Since the US dollar has been the worlds trade currency, if there is a full devaluation of the US dollar you can expect the calamity that Jamaica has seen but tenfold.
What is at the same time encouraging and discouraging is we are seeing politicians who have a chance of being elected talking about the destruction of the middle class but rarely talk about more than special interest groups and lobbyists.