Updated: Oct 16
Prior to 1971, the dollar bill was a contract that stated the person holding the dollar could exchange it for X amount of gold. Since 1971, the dollar has not derived its value from any asset, it is the world's reserve currency, which means it stands alone and other currencies derive their value from it. Thus, the dollar cannot decrease in value significantly against the value of other currencies, however, it can depreciate against itself... and it has.
Since 1971, the US dollar has lost over 95% of its value. And this can be seen in the price of gold, which now costs over $2000 an ounce as opposed to $35 an ounce back in 1971. Is there a less gold available today than there was then? No. Thus the value of gold has not gone up, but the value of the dollar has gone down. Actually, it has plummeted.
The question then becomes, how much can the dollar depreciate? Exactly when does the dollar lose 100% of its value and become worthless? Well, never. Due to the system its in, the dollar can never officially fail because it provides a base value for each other currency that exists today.
There are staggering side effects of our current system. As the value of the dollar decreases, assets such as homes, cars, stocks, etc. all become more expensive. It's no surprise that the average price of a home has risen significantly since 1970, but how much of that was attributed to the dollar becoming less valuable?
In 1920, the average price of a home was $2000. In 1970, the average price of a home was $23,600. An increase of 1,080%. Whereas the average price of a home in 2020 is $320,000. An increase of 1,256%. Houses appreciated 20% more in the previous 50 years than in the prior 50 years.
The real question, what will a house cost in 2070? If the current system holds, the average price of a house in 2070 should be approximately $4 million. Adjusting minimum wage in 2020 proportionately compared to minimum wage in 1970, we can discern the minimum wage in 2070 would be $29 an hour.
Is this the future? The average house costing $4 million, while minimum wage pays $29 per hour. Or is this the end of the road for the unpegged US dollar?