The Fed is getting something right

Since the end of Bretton Woods, the reality that money is intrinsically useless is widely known (currency is used only as a medium of exchange). The value of money is set by the supply and demand for money and the supply and demand for other goods (including gold) and services in the global economy. At the start of the Great Depression, investors began trading in currencies and commodities. Gold prices rose as more people demanded the element to replace dollars . When banks couldn't meet the demand, they began failing. The US central bank kept raising interest rates, trying to make dollars more valuable and dissuade people from further depleting gold reserves. Later, when the Bretton Woods agreement fixed the price of gold to control fluctuations in currency exchange rates, the dollar became the de facto replacement. The strong dollar led to inflation and a large balance of payments deficit in the U.S. which in turn helped to create stagflation. The U.S. started to deflate the dollar in terms of its value in gold to curb double digit inflation. In 1971, gold was repriced to $38 per ounce, then again to $42 per ounce in 1973. As the dollar devalued, people were anxious to sell U.S. dollars for gold. In late 1973, the U.S. government decoupled the value of the dollar from gold altogether. The price of gold quickly shot up to $120 per ounce in the free market. At present we see gold at an astronomical price -- buying gold is a standard fall-back during a recession, so no surprise. But a collapse in gold prices could signal further turmoil. Daily reports of countries bracing for the end of the Euro don't help.