While growing up in the USA during the 1950s, I often heard a refrain that had been part of American folklore for at least a century.
And that was: “The dollar, as good as gold!”
It should easy to see why this is no longer the case.
First, a bit of history. Consider that gold content of the US$ was set at $20.67 per ounce in 1832 & was not altered until 1933. As such, there was basically no domestic inflation in the USA for about 100 years & the gold value of the $ in international commerce changed very little except during wartime.
For his part, FDR anticipated Rahm Emmanuel’s mantra to “never let a good crisis go to waste” & issued an executive order forcing all Americans to give up their gold. The fact that this was an egregious violation of one of the most sacred beliefs of the American Republic: the primacy of private ownership.
Overlooking the dangerous precedent of his outrageous action, scholars of that period have perpetuated a conventional wisdom that most of FDRs policies were both necessary & efficacious.
For the next 40 years, foreign governments could redeem $’s for gold. But in August 1971, President Nixon defaulted on America’s promise to exchange gold for $.
Fast forward to the present where near-zero interest rates, massive monetary pumping & the explosion of public-sector debts have all contributed to undermining the myth of the “Almighty Dollar”.
In the not-so-distant future, the price of gold will breach $2000 per ounce.
This will be a testimony to political dishonesty, populist irresponsibility & intellectual failures of most economists to understand the nature of a world with a perfectly elastic supply of paper (fiat) money.