I’m livin’ at the end of the rainbow
I found a pot of gold that’s all for me
A snow white Cinderella wrapped up in faded jeans
And our little home’s a castle got an angel lovin’ me
Dave and Sugar, “Livin’ at the End of the Rainbow”
Having a pot of gold would sure come in handy right about now. Here in Fort Worth, Texas, gas prices hover currently at about $3.40 per gallon. While they’ve trended down slightly over the past few weeks, they’re dramatically up from the $1.43 per gallon we saw in January 2009. While many economists blame oil price speculation for driving the market price of gas up, other forces are at work causing prices for gas, and just about everything else, up with seemingly no ceiling in sight.
One primary force driving inflation: Lack of a gold standard.
What is the gold standard? A VERY brief history of money in this country: Our Founding Fathers were not fans of paper money. They preferred that the citizenry use something of value to purchase something else of value. Bartering was fine, but a precious metal valued by all seemed more practical. Both gold and silver were the precious metals used as monetary units, until the Gold Standard Act of 1900, in which the United States decided that all money within the United States be backed by gold. This means that at any time, you could get a dollar bill, go to the mint, and get its equivalent value in gold. The country would keep the gold backup in secure facilities. Most of it is still in Fort Knox, Kentucky.
The temptation to just print money and throw it at a problem, however, became just too much for politicians to resist. So in 1971, as a response to what he called monetary “speculators” threatening to devalue the strength of the American dollar, Pres. Richard Nixon signed an executive order “temporarily” removing the United States from the “Gold Standard.” Nixon pointed out, accurately so, that the American economy was the strongest in the world, and that the rest of the world economy depended on the dollar.
So in a twist of rather bizarre irony, in an acknowledgement of the fact that the American dollar was the world economic standard, he removed using Gold as a backup. The irony is that, instead of freeing the dollar from influence of speculators, he left the dollar far more vulnerable to those same speculators. Pres. Nixon’s temporary fix has been in place since his executive order of 1971. And the United States currency, now a fiat currency (tied to nothing except government regulation and the whims of a Central Bank), has been unstable since.
A strict gold standard means that the Federal Reserve could never just print extra money to throw at an economic problem. While the extra money acts almost like an economic crack cocaine rush to certain sectors, eventually, everyone gets wind that there is more money. And everyone wants his/her share. So prices go up.
Combine the Fed’s ability to print money with its allowance to commercial banks to lend about 1,000% of deposits they receive, and you have a country with a lot of inflation, and really no one sure whether they’re money is real or not.
Looking for your pot of gold? You’ll probably find it in Fort Knox. And it will require an executive order to get to it. Best of luck!