Federal Reserve Chairwoman-Janet Yellen today raised the Fed funds benchmark rate .25% but said that she does not see economic growth gaining speed. The world is concerned about the staggering amount of global debt, much of it created by the Federal Reserve during its socialized money creation known as Quantitative Easing. Confidence, the great driver of economic expansion in free market capitalism, is largely absent today. Dubious social financial engineering has stalled out a strong economic recovery, and we will continue to see more investors move into gold and silver among other hard assets.
Today, the U.S. dollar as a fiat currency (not backed by hard assets), is accepted as trade for goods and services, based on the faith in the fiscal strength of the U.S. Treasury, and the Federal Reserve. An economic historian is aware that the U.S. dollar was backed by gold for many years including the period from 1900 through 1933. In January of 1934 the Gold Reserve Act raised the exchange rate of gold from $20.67 to $35 per troy ounce. This 70% rise in value of gold- created an incentive for gold owners outside the U.S., to redeem their gold for this windfall in dollars. The dollar was devalued intentionally by President Roosevelt, in the hope that deflation would be defeated, and inflation would rise.
In the late 1960’s and into the 1970’s, the U.S. experienced high inflation. Amidst a run on U.S. gold, in 1971 President Nixon suspending the direct international conversion of dollars into gold, and initiated price controls. Price controls are ineffective since they distort the relationship between supply and demand for goods and services. Inflation rose into double digits, and the price of gold quadrupled from $226 per ounce in 1978 to $850 in early 1980. Precious metals such as gold and silver, come under heavy demand, during times of economic distress-particularly when the dollar is losing its value measured in the cost of goods and services.