Recently, we found ourselves exploring the hidden gem of Pueblo, Colorado. Until just a week ago, this place was off our radar, but now we’re taking a moment to reflect on life outside the bustling Los Angeles Basin, sharing our thoughts from the serene banks of the Arkansas River.
Pueblo is situated approximately 45 miles south of Colorado Springs. Established as a trading post in the mid-19th century, it faced raids from the Utes and Jicarilla Apaches. However, this initial disruption was short-lived; a boom in steel mining and milling transformed Pueblo, permanently shifting it away from Native American tribal governance.
Just yesterday, we traveled along the historic Royal Gorge railroad route, flanked by towering granite walls reaching heights of 1,000 feet, gliding alongside the meandering Arkansas River. Today, our journey will lead us to the ancient Anasazi dwellings, dating back over 700 years, as we approach Pikes Peak.
Interestingly, Pikes Peak was a focal point during one of the most significant gold rushes in North American history. In 1859, the cry of “Pikes Peak or Bust!” echoed as around 100,000 hopeful gold-seekers, known as “Fifty-Niners,” surged into the Southern Rocky Mountains, driven by their quest for fortune.
In those times, gold represented true currency. There was no Federal Reserve to simply print paper notes; money was earned by trading goods or services or through mining. Thus, the value of money was intrinsically tied to gold, contributing to a relatively stable money supply despite the occasional rush.
Now, let’s shift our focus to the more recent evolution of gold and the United States monetary system…
Symbiotic Disharmony
On August 15, 1971, President Richard M. Nixon took a pivotal step by defaulting on the Bretton Woods system, an act that changed the landscape of currency internationally. From that moment onward, dollars became non-redeemable for gold, becoming purely fiat currency—government-issued paper money.
This change has created a complex and troublesome financial environment. With gold no longer attached to the dollar, the world’s currencies behave like unmoored buoys, bobbing on undiscriminating financial currents. The resulting imbalances in international trade are nothing short of remarkable.
Countries with weaker currencies find their exports thriving since their goods are cheaper compared to those from stronger currency nations. This has led to a shift of services to nations with weaker currencies, all in the name of globalization. Meanwhile, countries with stronger currencies tend to import more than they export, accumulating trade deficits.
However, as trade deficits expand, the potential for instability grows. Should surplus countries begin to panic and offload excess reserves from deficit countries, the intertwined nature of this system creates additional vulnerabilities. This arrangement, which epitomizes a state of symbiotic disharmony, is astounding—and it only gets more complicated from here.
We now witness countries engaging in a form of competitive currency devaluation. In this peculiar global financial arena, nations are striving to weaken their currencies to gain a competitive edge, resulting in fluctuating currency values while commodity prices generally rise, as noted in individual currencies. In essence, no currency can shield you from diminishing purchasing power; the real question is how quickly and significantly your money will lose value.
We Are All Screwed
When Nixon severed the final ties of currency from gold, it also granted the Federal Reserve unprecedented freedom to produce money at Congressional demand. The economic landscape of the 1980s and 1990s seemed triumphant, marked by what many referred to as the “Goldilocks economy,” characterized by low inflation and robust growth that created the illusion of widespread prosperity.
But when the underlying structure began to falter in 2001, Alan Greenspan activated the monetary engines, sparking an unparalleled binge of debt. The situation escalated to the point where people were eager to invest in speculative condo developments in Miami Beach, often flipping properties for significant profits before they were ever occupied.
The story is known: when the music stopped, chaos ensued, and Bernanke was forced to intervene yet again. From November 2008 until now, the Federal Reserve has conjured about $2 trillion out of thin air, a feat achieved without any labor or productivity. This ‘free money’ comes with serious repercussions.
Pueblo’s population stands at approximately 105,000, with about 68,000 residents falling between the ages of 18 to 64, typically regarded as the working-age group. The city’s median income hovers around $30,000 annually. Assuming full employment, Pueblo’s total gross income would be nearly $2 billion per year—considered decent by many standards.
There’s no excess funding from Washington here; no Wall Street manipulation. Residents earn every penny. Yet, it would take the entire city laboring non-stop for a millennium to amass what the Federal Reserve simply fabricated in a mere three years. This can lead us to one unavoidable conclusion…
We are all in a precarious situation.
Sincerely,
MN Gordon
for Economic Prism