The US Dollar: A Titanic Disaster

One hundred years ago, the Titanic slipped below the frigid waters of the North Atlantic Ocean. That’s roughly the same moment when the US dollar also hit an iceberg. In 1913, one year after the Titanic disaster, the US government passed the Federal Reserve Act…and the dollar’s value has been sinking ever since.

Eight years ago, in an essay for Whiskey & Gunpowder, Byron King, editor of Outstanding Investments, examined these twin disasters. The insights he shared were poignant then; they are especially timely now…as the Federal Reserve’s Federal Open Market Committee just announced a brand new round of quantitative easing – i.e. money printing.

The popular press cheers the QE campaigns as “good for the economy.” Maybe yes, maybe no. But one thing is certain; the QE campaigns, like all other forms of currency debasement, are not so great for the US dollar’s purchasing power.

The QE campaigns, like all other forms of currency debasement, create illusions of wealth-generation, while quietly dragging an entire nation to the bottom of the sea.

The nearby chart illustrates this phenomenon very clearly…and painfully. Since the end of 1989, America’s inflation-adjusted GDP has grown by 70%. Yet, over this identical timeframe, the inflation- adjusted median household income has declined!

In other words, according to the government’s heavily massaged GDP calculations, there’s lots of “growthy” type stuff going on the economy. America is doing just great. But in the real world of real people, incomes are stagnant.

(Intriguingly, from 1967 – when the median household income data series begins – until mid-1971, when Nixon removed the dollar’s last link to gold, the median income and GDP advanced in lock step – both growing 7% over that 3-year timeframe.)

Net-net, the Federal Reserve may be great theater, but it is not great economics. Sound money creates a starting point for true wealth creation. Debasement never does.


Eric Fry
for Markets and Money

From the Archives…

The ECB’s Outright Monetary Madness
07-09-2012 – Greg Canavan

Who Knows What’s Going on in China’s Centrally Planned Economy?
06-09-2012 – Greg Canavan

The Australian Dollar is Not the Euro
05-09-2012 – Dan Denning

Australia’s Unbalanced Boom
04-09-2012 – Dan Denning

Why a Monarchy Beats Modern Democracy
03-09-2012 – Bill Bonner

Eric J. Fry
Eric J. Fry has been a specialist in international equities since the early 1980s. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short- selling. Mr. Fry launched the sometimes-abrasive, mostly entertaining and always insightful Rude Awakening.
Eric J. Fry

Latest posts by Eric J. Fry (see all)

Leave a Reply

1 Comment on "The US Dollar: A Titanic Disaster"

Notify of
Sort by:   newest | oldest | most voted
Mick down under

i think you need to factor in population growth to the GDP figure before that chart makes any sense.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to