Article 2: The Dollar and the Gold Standard

April 29, 2025 by mindfulhitting

Let’s start with a few surprising facts about currencies that you may not be aware of.

• The Dollar is not backed by anything. The US officially came off the Gold Standard (where the dollar was backed by gold) in 1971, although the break between the dollar and Gold started to sever decades in previous decades. This is when the dollar officially became a Fiat currency. A Fiat currency is a currency issued by the government and backed by the trust that it is worth what the government says it is. The definition of fiat is “by decree.”
• The dollar has been losing purchasing power consistently since its inception.

• Fiat Currencies have an average lifespan of 27 years.
• World reserve currencies have an average lifespan of 80-100 years, and the dollar has been the world’s reserve currency for about 103 years.

As you can see from these few examples, currencies that are issued by governments do not have the best track record. Fiat currencies all end up collapsing at some point in time because of centralized authority over the money supply and/or new technology comes in to disrupt the status quo. It has been happening for hundreds of years, when cultures used seashells for exchange. For example, wampum shells used to be used as currency in parts of the Americas, Africa, and Asia. These shells were fairly rare to these cultures and were difficult to come by so they worked well for retaining value. This type of currency works well in small societies, but eventually the New England colonists arrived and with greater technology they were able to drill for more shells at a much faster pace then the more primitive societies they encountered. They used these mass produced shells to purchase furs and items from these indigenous populations until the market was flooded with new shells. The mass production and centralized authority that New England brought to this economy devalued the shell currency and the colonists were able to buy most of the goods the indigenous population had worked to create. This more primitive form of hyperinflation lead to the collapse of the shell currency and had to reset to a more sound or “hard” money that newer technology couldn’t mass produce. This refers to money like gold, which is hard to create and extremely difficult to replicate. This makes for much better or sounder money than seashells, salt, or cattle, which were all used as currency at some point in history.

During the Gold Standard era, the dollar was backed by gold, meaning you could take your cash into a bank and redeem it for its value in gold. With the dollar pegged to the value of gold, governments were held to a certain level of spending as they could not print more money than they had gold in reserves. In today’s economy, the dollar, along with every other global currency, is fiat money, as it is no longer backed by gold or any other real commodity. This allows governments to print money on a whim, which dilutes the purchasing power of everyone’s money. The dollar began to come off the gold standard in part to finance both world wars (and all the wars since) and also because telecommunication technology such as the telegraph made moving money much simpler and faster than sending and verifying gold for each transaction. So the US, and eventually the world, broke away from a peg to gold and we now have around 160 fiat currencies around the world. This allowed transactions to happen much more seamlessly, but it also changed the way wars were financed. We used to vote on wars and buy war bonds to support a war or raise taxes, but now we endlessly finance wars because the money is created with no taxes being taken. What we fail to understand is that there is a tax being taken, and that is the tax of inflation, which we will dive into in the next article.

With no asset to peg our money to, the government of any country prints money whenever they are in a pinch, and also when its politicians need to win an election. For instance, when faced with a possible recession, it is a much easier decision to print money to “save” the economy in the short term in order to get reelected, while leaving the mess to fall on another leader in the future. It is very difficult to win an election by cutting spending and letting the economy correct itself. History has continued to repeat this mistake, and eventually the game ends, and a new money is introduced.

I believe we may be nearing the end of the dollar as a world reserve currency. To tell you the time is impossible. It could be 5, 10, or 50 years away, but every time we print more money, we bring that timeline closer. We printed over 700 billion dollars in 2008 during the Great Financial Crash and over 6 trillion dollars in the Covid-19 response. If we have another shock to the system, how much money will they need to print to avoid disaster, and how much more fragile will that ultimately make the system?

There is a point in time when the national debt of this money printing becomes impossible to pay back because just the interest rates alone are too high to pay back. According to https://www.usdebtclock.org/, we are currently at $33.6 trillion dollars in debt. This is not something that can go on forever.

In the next article, we will dive into inflation, which is what all this money printing creates. I promise that this is not to be doom and gloom, as I know it sounds that way, but more of a realistic look at what is happening in the world. We need to know the problems in order to start looking for a solution. There is a lot of hope in the near future too. It comes from people seeing potential future problems and building new ways to mitigate or solve these problems.