new global monetary system at the Bretton Woods Conference in 1944, held in New Hampshire. Under this system, the U.S. dollar became the anchor for all other fiat currencies. Instead of stockpiling gold bars in their vaults, foreign central banks were encouraged—some would say compelled—to hold U.S. dollars as their reserve currency. At the time, those dollars were backed by gold, with an official exchange rate of $35 per ounce. That gold backing gave the global money supply a firm foundation. But as the Vietnam War drained U.S. resources, the dollar weakened. Foreign governments, doubting America’s ability to keep its promises, began cashing in their dollars for gold. By 1971, President Nixon and Congress ended the gold standard, making the Bretton Woods agreement null and void. From that point forward, the dollar was backed not by gold—but by faith in the U.S. government. Now consider this: Before the 2008 financial crisis, the Federal Reserve’s balance sheet stood at $871.9 billion. Today, it has exploded to more than $3.6 trillion—and continues to grow. What happens when banks begin pushing this flood of money into the economy? The answer is simple: the dollar loses value, and the cost of everything you buy goes up.
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