So what has acted as a restraint on the issuance of more dollars since then?
As long as the rest of the world was willing to continue holding dollar reserves, their demand for the dollar would bid its price higher than it would otherwise be.
As long as oil producers were willing to sell their depleting commodity for a depreciating, irredeemable currency, Americans were the beneficiaries of this added dollar demand.
If the world would just continue to go along, the Federal Reserve could accommodate spend-thrift US politicians and create new dollars at virtually no cost.
But to mix our ornithological metaphors, the chickens have begun coming home to roost. There is no reasonable prospect of the federal debt being paid down, at least if both the visible ($12 trillion) and the hidden ($100 trillion?) debt are taken into account. Nor can anyone possibly believe that today’s government bonds can be paid except by issuing new bonds tomorrow.
It is this reckoning that had gold pierce the $1,000 mark in 2008 (while oil soon surged ahead for the same reasons to $147). And despite the scramble for liquidity with the mortgage meltdown last year that drove gold briefly down to almost $700, it didn’t take long for gold to work its way back up and to new highs.
The dollar bubble may not pop suddenly like the dot com bubble or the housing bubble. But like the miner’s canary, the gold price is warning that our monetary system is toxic. The alert will heed the danger signals and evacuate, protecting themselves with the kind of simple strategies I recommend in my book, The Dollar Meltdown. While most will eventually get out of the way, the less fortunate will not. At their peril they will continue to descend with the dollar into the toxic depths only to find themselves rewarded with an abandoned mine - shaft and all.