Often I am asked about what I think will happen to the US economy if the dollar collapses.  The person asking is usually filled with dread waiting for my answer.  However, as a student of history I know that the value of the dollar has already collapsed and the world has become shakier but the dollar’s fall was not the cause.  Let me explain this further.

In 1970 I was eligible to go abroad.  It was during that trip as a fourteen year old I learned about exchange rates (as many travelers aboard are forced to!).  I vaguely remember one dollar being worth about 4.2 Swiss Francs and gold was pegged at $35 an ounce.  At that time, if I told anyone that the dollar would be worth less than 20 cents compared to the Swiss Franc they would have laughed at me or stated something along the lines that a third of the workforce would have to be unemployed for that to occur.  However, the US dollar is worth about 19 cents today when compared to the Swiss Franc, setting the 1971 dollar equal to 100 cents.     And the value of gold during this same period jumped from $35 an ounce to around $1,600 an ounce making the value of the dollar in terms of 1971 gold prices just 2 cents!

When we look at the US dollar and collapse of the US currency along with talks about economic Armageddon I often laugh.  The dollar has been collapsing for the past 40 years.  Below is a chart prepared by the St. Louis Federal Reserve Bank.  It clearly shows that the US dollar is worth 19 cents from what it was worth in 1971.  If I included charts for gold and French Francs we would see a similar trend, though the severity would be different.

Yet, during that period, we have not seen a collapse of our society.  The standard of living in both the US and Switzerland has improved enormously.  So the correlation between the value of the dollar and economic ruin is a misnomer spun by people who do not pay attention to facts!