In 1971, unilaterally, President of United States Richard Nixon canceled Bretton Woods System, i.e. stopped direct convertibility of US dollars to gold. This was mean that gold reserves of USA was not sufficient for backing up US dollars. Starting from this year, gold price rose dramatically. When in the last year of Bretton Woods system, gold price was US$ 41.25 in market (officially US$ 35), today gold price is around US$ 800.
Well, Nixon did this with multiple reasons. One of them to be blamed other than not sufficiently enough of gold reserves is much spending for Vietnam War (this war was running balance of payment deficit and so is trade). This war drove out US dollars abroad to fund nation's military expenditures and private investments. The excessive amount printed dollars made other nations demand fulfillment of USA promise to pay, demanding gold in exchange of US dollars (because Bretton Woods Agreement said so). So, Nixon started the process of abandonment of Bretton Woods System and after his reign, in 1976, all of nations floated their currency. They can not say no to Uncle Sam.
Even in the eyes of lay people like me, this was analogical to curing cancer with painkiller. Sure the pain would fade, but the pain would occasionally appear again and the necessity of painkiller was increasing, and eventually when the time of painkiller was not work came, a disaster emerged. I feel that economic crisis of 2008 is only beginning. Long day of grim world is awaiting us.
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