The Price of Gold

The price of gold is related to the strength of the dollar. When the government inflates the money supply, the value of every dollar decreases compared to the relatively stable supply of gold. The decreasing value of the dollar means less purchasing power. In other words, it takes more money to buy things than it used to (i.e., prices rise).

With this in mind, did you hear that the price of gold hit record highs this week? Take a look at the price of gold over the last 20 years.

The money supply began to rise as a result of increased government spending (i.e., increased debt) in the wake of 9/11, as we began to fight two wars simultaneously (Afghanistan, Fall 2001; Iraq, Spring 2003). We spent money we didn't have.

The wars, of course, were not wholly responsible for our increasing debt. We have been spending money hand over fist on a vast array of other things as well, such as TARP (Troubled Asset Relief Program, Oct. 2008:  $700 billion), ARRA (American Recovery and Relief Act, or the so-called "Stimulus Package", Feb. 2009:  $787 billion), and ten-thousand other things the government is involved in that it has no Constitutional authority to do. The result is that we are in debt to the tune of 13 1/2 trillion dollars. If you haven't seen it yet, be sure to check out the U.S. National Debt Clock. Spend some time looking it over. It's very sobering.

The current price of gold dwarfs the previous high of 1980, at the end of the Carter administration (also a time, like today, when Democrats controlled the White House and both Houses of Congress).


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