I see separate long-term policies converging:
1. Gold Standard. Under a gold standard, the country can only have as many dollars in circulation as it has solid assets. The currency represents those assets.
FDR took our country off the gold standard (for internal purposes) in the 1930's so he wouldn't be constrained in his effort to spend our way out of the great depression.
Nixon took us off the gold standard for international trading in the 1970's. So he could fund LBJ's war on poverty, the brand new EPA, and the Viet Nam war all at the same time.
Since then, our money has been backed by nothing except the "Full faith and credit of the United States." Faith? That means our money is now physically not even worth the paper it's printed on.
2. Related to #1. Quantitative Easing. Since even before the recession or crash or whatever it was back in September of 2008, the Federal Reserve has been printing money at an extraordinary rate. Like any asset, the more rare something is, the more valuable it is.
Simple law of supply and demand; if the supply of something grows and the demand stays the same or drops, the price (inherent value) must fall.
3. Related to #2. The American dollar is the "global reserve currency."
This means, that when Brazil wants to buy something from South Korea, the Brazilians must convert the purchase funds into dollars to make the purchase. Then the South Koreans convert those dollars into whatever their money is called. This is supposed to keep all international transactions fair (level the playing field).
Lately, Russia, China and the International Monetary Fund (IMF) have all called for a switch from the dollar for international trading. If this happens, the worldwide demand for dollars will go down by a LOT. (I read one estimate of a 25% drop). This may cause havoc here -- since this demand is what has been propping our (paper only) dollar up for so long.
4. American government debt. (You knew this one was coming, didn't you?) There's been some talk that the government actually wants to inflate the dollar so they can pay off foreign bond holders with worthless money. That's the Full Faith and Credit of the United States?!??!
How is this advantageous? I recall that during the inflationary 1970's, this same strategy was employed by average citizens; they bought everything (and I mean EVERYTHING) on their credit cards assuming the money sent to pay off the cards would be worth less than “today's” dollars. Admittedly, I'm no math wiz, but I fail to see any advantage here; you still have to pay off your debts and the accumulated interest besides.
I foresee a convergence of these policies into a PERFECT STORM. Savings accounts: worthless. Paychecks: worthless. Prices rising faster than the money can depreciate. $100,000 bills becoming commonplace – one of them might cover a single month's worth of electricity.
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