Our thanks to Sean Hyman of Currency Cross Trader for the nifty little idea we incorporated into the title of this article referring to the 1971 unpinning of the dollar from the gold standard by President Nixon. Since then, the government has been able to write checks for anything it wanted without having to worry about actually paying for it. Pretty nifty, huh? Apparently, the dollar is now powered by all the hot air floating out of Washington DC.
With this single misguided decision, our currency was doomed to a continual loss of value going forward. Here’s a quick refresher on the gold standard. Prior to Nixon’s decision, every dollar in circulation was backed by enough gold deposited in Federal banks so that the value evened out. Back then the price of gold was $35 per ounce. Going off the gold standard meant that our currency could no longer be converted into gold. In fact, the only reason it’s worth anything at all is because the majority of Americans still buy into the idea that our government is strong enough to make good on financial promises, but that faith is wavering.
The undisputed fact is that the dollar’s value has been under assault from all sides since 1971. Gold has multiplied 37 times in the interim, while the dollar has steadily lost value against all major world currencies. Right now our gold reserves stand at about eight thousand tons which, at today’s prices, equals about $11 million dollars. Compare that to $900 billion in circulation last year alone. The discrepancy is almost laughable. All the gold ever mined in the world’s history is estimated to add up to only about $5 trillion, which wouldn’t even begin to touch the national debt.
As we already said, the only reason paper dollars are worth anything is because we believe the government when they say, “We’re good for it.” The immediate problem with that system is that a politician’s promise is nothing more than a verbal fart in the wind and certainly nothing to pin the hopes of a nation and world upon. At Creating Wealth, we’d love to see the United States get back on the gold standard but don’t see any way it could possibly happen, short of a complete destruction and rebuilding of the monetary system and that certainly won’t come at a price short of the Second American Revolution.
The Creating Wealth Team
Flickr / Beverly & Pack
