Gold and Fiat Currency: Forty Years Later

by Nick Barisheff

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I wrote this article in 2011 to commemorate the 40th anniversary of August 15, 1971—the date that US President Richard Nixon closed the gold window. This, of course, was a euphemism to hide the default by the US in no longer allowing other nations to convert their US dollars into gold. The ability for individuals to convert their dollars into gold was terminated in 1933. Since August 15, 1971, there were no more restraints on the amount of fiat currencies that could be created.

Gold and Fiat currency: Forty Years LaterIn 2011 the total US federal debt stood at $14.6 trillion. In five short years, on the 45th anniversary date, the US federal debt has climbed by about $5 trillion, to $19.4 trillion. In order to put this into context, it is important to understand that in 1971 the total US federal debt was $400 billion; today, the annual deficit exceeds $500 billion. If you add unfunded liabilities for Social Security and Medicare, the real debt is increased by $103 trillion.

Clearly the growth in debt has become exponential. The very close historical correlation between the growth of US debt and the price of gold is the premise behind my book $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven. Since no politician in any Western country is planning to cut spending, reduce the annual deficits and reduce the debt, it is a fairly safe bet that the price of gold on the 50th anniversary will be dramatically higher.

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