1971
Gold was the “real money” (inter-country transaction currency)
Fiat was “checks in a checkbook”; claims that could be settled back to “real money”
Due to excess US spending it became obvious that US gold reserves would run out
There was a rush to exchange USDs for “real money”
August 15, 1971 — Nixon “defaults” on USD-Gold link
“Money as we understood it was ending”
Stock market rallied afterwards
but...
same thing happened in 1933, when FDR broke USD-Gold link
In both cases, US could continue to spend more than it earned simply by printing more dollars
Since number of dollars increased without wealth increasing, the value of each dollar decreased
Since new dollars entered the market without a corresponding increase in productivity, they went to buy stocks, gold, and commodities...hence price rises
Cycle has happened many times
- Governments spend more than they take in in taxes
- Conditions get bad
- Governments run out of money
- So governments print more
- Value of money falls
- Prices of stocks, gold and commodities rise
So: “When central banks run out of money, buy stocks, gold and commodities”
Historical examples
- 2020
- 2008
- ...