From: Philip Balboni, PhD from Philip Balboni, PhD <philipbalboni@substack.com>
Date: Wed, Apr 9, 2025 at 11:13 AM
In 1999, at the peak of America's unipolar, post-Cold War power, an ounce of gold cost $250. In 2008, right before the Great Financial Crisis (GFC) exposed the frailties and fraud of the financial system, gold had risen to $700. In 2016, as years of economic pain drove a bipartisan backlash against a political establishment that millions blamed for rescuing Wall Street at the cost of Main Street, gold hit $1250 an ounce. In 2020, with American (and European) finances and politics deteriorating at a rapid pace, the price of gold surpassed $1,700. By early 2024, as polarization surged, trust in foundational institutions cratered, and deficits hit levels unprecedented in peacetime, the gold price exceeded $2,000. Today, as awareness grows of a looming economic and political crisis at home, as Europe re-militarizes in a desperate gambit to avert its own political-economic crisis (the oldest trick in the book), and as Old Testament revanchism and the industrial scale slaughter of children pushes the Middle East into total war—as crises metastasize, gold has now surpassed $3,000 an ounce, breaching a critical psychological threshold. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber. As an anthropologist hitherto concerned with the political, cultural, and economic consequences of Western imperialism in the Middle East, why am I writing about the price of gold? The reason is simple, albeit poorly understood. To wit, a rising gold price is the proverbial canary in the coal mine of America's "exorbitant privilege": the privilege of having US dollars and US sovereign debt, the latter sold in the form of "Treasuries," serve as the foundation of the global financial system. As we will see later, gold was initially the means by which American financial (and, by extension, military) hegemony was secured after 1944. Yet gold would later become an impediment to both the preservation and the expansion of this hegemony: when backed by gold, the expansion of the dollar supply was checked by how much gold the US had in its coffers, thereby constraining the extent to which Washington, Wall Street, and the Federal Reserve could print more dollars and, by extension, issue more debt via the sale of Treasuries. By effectively exiling gold from the financial system in 1971 thanks to Nixon's indefinite "suspension" of the "gold standard," gold's constraint on borrowing and "money printing" was eliminated. As a result, the path was cleared for fifty years of unbridled increases in both the dollar supply and America's debt obligations. The consequences of this shift in monetary and fiscal policy after 1971 are rarely discussed. But they have nevertheless been profound: while the fifty years prior to 1971 were a historic period of rising American living standards and falling rates of inequality, the fifty-four years following 1971 have seen the opposite: falling living standards, and exploding inequality. For decades after 1971, gold's price was deliberately suppressed by Washington and Wall Street insiders, keen to eliminate any competition to US dollars, now unbacked by gold, and US Treasuries. As we will see, the continuous effort to eliminate competition for US dollars and Treasuries began to fail after 2008, however, as evidenced by falling foreign demand for Treasuries and declines in foreign reserves of USD since the "Great Financial Crisis" (GFC). The most important sign of a decline in the significance of US debt and dollars, however, is the uptrend in gold prices, primarily driven by foreign central banks, who have been furiously buying gold while either selling or eschewing Treasuries. As we will work to demonstrate in what follows, it is this upswing in gold prices that is the clearest indication that America's access to a practically limitless cash flow and credit line, previously assured by huge global demand for dollars and Treasuries, is now ending. The end of this "exorbitant privilege" (manifested, to repeat, in the ability to create ever more quantities of dollars and to take on ever more amounts of debt) will have profound consequences for both Americans and for the world. Indeed, it is the end of this "privilege" that is the skeleton key for understanding what otherwise may appear as deranged policy decisions out of Washington. These policies—under Trump, but also previously under Biden, who massively expanded America's deficits in an attempt to prop up the flagging economy until after the election—are doomed to fail. These policies are the last, desperate gamble of a dying financial empire grasping for a way to remain on top. Indeed, and as Trump is now indicating with his nuclear tariffs, America may be willing to burn the global economy to the ground in a futile attempt to maintain dominance over the ashes. Ironically, Trump's recent tariff actions, along with Biden's extraordinary rates of spending (rates that Trump is sure to match) will put the final nail in the coffin of America's "exorbitant privilege," changing the face of the American economy for generations. To understand this, we must first explain the mechanics of this "privilege," and why it was already in terminal decline prior to "Liberation Day," 2025. Our "exorbitant privilege" As we will explain in even greater detail later, the reason that gold's rise threatens American financial (and by extension and military and geopolitical) power is that gold is the only serious competitor to the twin pillars of America's "exorbitant privilege." These pillars have been, to repeat, US dollars and US Treasuries: the former being, since 1971, a "fiat" currency created out of thin air by the Federal Reserve (and secondarily by big banks); the latter being American sovereign debt, monetized and sold by the US Treasury Department in the form of Treasury "bills" (short term debt), "notes" (medium term debt), and "bonds" (longer term debt). The seeds of America's postwar financial power had been sewn long before WWII. Yet it was in 1944, at the signing of the Breton Woods Agreement, that these seeds began to truly sprout. Even before the cessation of hostilities in 1945, it was clear that America would be the "last man standing," economically speaking, when the war ended. Making up over 50% of global GDP and holding an immense stockpile of gold after 1945 (more on this below), in 1944 America was in position to dictate the terms of the postwar financial and monetary order. It was this position that allowed the United States to lay the foundations of the world's reliance upon US dollars as the default medium for international trade, and upon US Treasuries (again, US sovereign debt) as both the lifeblood of global finance and the default "safe haven" investment for governments, private investors, corporations, and financial institutions alike. As the reliance upon US dollars and debt grew after 1945, and as America pivoted from being the world's creditor to the world's debtor in the 1950s and 60s, the United States achieved two things, which would combine to form America's exorbitant privilege: First, the ability to borrow practically limitless amounts of money from creditors via the sale of Treasuries. Effectively loan agreements, whereby an investor loans the United States money in return for a promise of future repayment and a nominal dividend or rate of interest, the sale of Treasuries ensured a constant flow of money into the US Treasury from both domestic and foreign creditors. Second, the ability to print huge quantities of dollars. Or, more specifically, the ability to do this without price inflation and currency devaluation increasing so quickly that American citizens would realize that the real value—the purchasing power—of their currency (USD) was being progressively eroded by the creation of new units of currency. This is because, as every central banker and economic historian worth their salt knows, large expansions of a nation's currency supply inevitably lead to an inflation in prices and a loss in the purchasing power of the currency in question. These two consequences are, in reality, the same phenomenon viewed in two different ways, as discussed here. The only way to slow this process is to maintain immense demand for the currency in the question, with demand mitigating the price inflationary and purchasing power deflationary consequences of creating huge quantities of fiat dollars. These two dynamics—effectively limitless borrowing made possible through the sale of Treasuries, and effectively limitless currency creation made possible through massive global demand for dollars—have constituted the core of our "exorbitant privilege." Before returning to the role of gold, some more detail on each of these dynamics (massive currency creation, and equally massive debt increases) is beneficial for those who have not previously studied these matters. I beg the reader's patience: given that grasping these issues is essential for understanding the seismic convulsions now taking place in America, one must elaborate and restate them until they have become fully transparent even to those with no background in economic matters. The "privilege" of printing the world's currency From 1944 to the present, the Federal Reserve (FED) has increased the supply of dollars, going off the "M2" metric, by almost 19,000%, going off the FED's own data. (The supply of dollars is catachrestically referred to as the "money supply": in truth, today's fiat dollars are not money but rather currency, a critical distinction for another time). If any other nation had increased the quantity of its currency as much and as fast as the US has done over the past 80 years, the result would have been hyperinflation in prices and hyper-deflation in the purchasing power of the currency in question. In a word: expand the quantity of currency too quickly, and you flood the economy with more currency than there are goods and services to be purchased. The result is an upswing in prices (inflation) and a downturn in the purchasing power of the currency, as too many units of currency chase too few goods and services. As noted, every intelligent central banker knows this. As does every economic historian who has seriously studied the history of monetary policy. We need not confine ourselves to the cases of Ancient Rome, imperial China, or early modern Europe to recognize the inevitable consequences of excessive currency creation. Rather, we can find examples closer to home: such as in the colonies prior to the American Revolution, and then again during the Civil War in both the North and the South. Despite the 19,000% increase in the M2 dollar supply since 1944, however, price inflation and dollar depreciation have not been so extreme as to pique public awareness. This even though inflation in the US has risen by 1,700% since 1944, while the purchasing power of the dollar has declined by at least 94% over the same period. While these figures are certainly undercounts, they give context to why 1 dollar in 1944 bought 94% more than 1 dollar does today. Given America's rampant "money printing" since 1944, what has saved the United States from suffering far worse inflation and currency depreciation than it has? The answer is the immense global demand for dollars that has obtained, with a few bumpy stretches, for the last 80 years. It is this demand that has propped up the value of the dollar and allowed America to export its inflation across the world, sending its printed dollars abroad in exchange for real goods exported by foreign states. Demand for dollars was established at Breton Woods, and was reinforced and expanded by various deals in the later 20th century. In a word, the world was pushed to conduct more and more of its international trade in dollars after WWII, meaning that countries needed dollars to trade, not only with the US, but with other countries as well. By pushing foreign countries to conduct large amounts of their international trade in USD, demand for dollars remained artificially high—even as the US was printing new dollars at a rapid pace. This demand, in turn, kept both the real value (the absolute purchasing power) and the relative value (the purchasing power of the dollar relative to other currencies) artificially high, thus mitigating the price inflationary and currency deflationary effects of America's "money printer." The principle for why demand for dollars protected the value of dollars is the same as for any other good or commodity. Imagine, for example, that the supply of tea had followed the supply of dollars, increasing 20,000% since 1944. If demand for tea had not changed during this period, then the real (inflation adjusted) price of tea would have collapsed, as supply vastly outstripped demand. If demand for tea, however, had risen 15,000% while supply rose 20,000%, then the real price of tea would likely have still have fallen—but by much less than if rising demand had not mitigated surging supply. This same dynamic of supply and demand has held true for the dollar. While the supply of dollars was constantly rising after 1944, demand for dollars was rising also, though not as fast as supply. Had this huge international demand not existed, inflation and currency depreciation in America would have been blatantly obvious to its citizens, and we would likely have resolved the problem long before today. In fact, awareness of the relationship between monetary policy and inflation/the value of the dollar almost took hold in the 1970s, after Nixon massively devalued the dollar by decoupling it from gold. What saved price inflation and currency depreciation from getting out of control in the 70s was the creation of the "petrodollar" system—the system formed when the United States and Saudi Arabia agreed, in 1973, for Saudi Arabia to sell its oil exclusively in dollars in exchange for security guarantees and financial incentives from the US. The deal led to all OPEC oil sales being priced in dollars, thus replenishing global demand for USD, since countries now needed to have dollars if they wanted to buy oil, whether from Saudi Arabia or almost anywhere else. With the ability to print ever more dollars without hiking inflation and debasing the value of the dollar too quickly, Washington and the Federal Reserve, along the banking and corporate interests that have controlled both for decades, were able to continue borrowing, printing, and spending enormous amounts of cash. This helped the US government fund its numerous declared and covert wars while maintaining liquidity for itself and its contractors and sustaining some semblance of welfare, infrastructure, and education for its citizens—even though these latter budget items have been quietly deprioritized for decades, with money plowed into the Pentagon and the financial system rather than into schools, welfare, and health outcomes. (NB: The other major consequence of rampant currency creation/"money printing" has been a continuous rise in inequality since the 1970s. Few realize that an expanding supply of currency is a primary culprit for rising inequality, per the "Cantillion Effect" and other poorly understood financial dynamics. It is, in fact, these dynamics that made the Covid "stimulus" perhaps the greatest transfer of wealth from the many to the few in history. Readers may look here for my own account of the relationship between "money printing" and inequality). The "privilege" of issuing the world's "reserve asset" The second pillar of America's "exorbitant privilege" has been the huge global market for US sovereign debt, monetized and sold in the form of US Treasuries. Treasuries, as noted, are effectively what one receives in exchange for loaning America money: I loan Uncle Sam $100 for 2 months or 10 years, and in return I receive a 2 month Treasury bill or a 10 year Treasury bond that pays a certain yearly rate of interest. The more Treasuries that the US government has outstanding, the higher America's debt burden, which is now approaching $37 trillion (not including the $73 trillion in "unfounded liabilities," which can never be paid within our current monetary system). In 1944, by contrast, America's public debt stood at just above $200 billion— meaning that the debt has increased nearly 18,000 percent over the last 81 years. If we annualize this debt increase over the same period, we see an average yearly increase in the national debt of about 6.39%. If any other country averaged a compounding 6.39% rise in indebtedness every year, they would have likely gone bankrupt long ago. That America has so far avoided this fate is not simply a factor of the size of its GDP. In reality, America's GDP is an illusion, propped up precisely by our ability to borrow and print so much cash. In fact, a sizable portion of our GDP comes directly from deficit spending, given that 36% of America's GDP now derives from federal spending, and much of this spending is financed through credit/borrowing rather than tax receipts. There are a number of reasons why America has had, up until recently, so little trouble finding creditors willing to loan it money—and at relatively low rates of interest. These reasons, however, boil down to three: First, after WWII, US Treasuries were progressively transformed into the lifeblood of the global financial system, providing liquidity to financial/debt markets around the world. This, in turn, created enormous demand for Treasuries from foreign central banks, businesses, and private investors alike. Second, US Treasuries came to be, especially after the demise of the gold standard in 1971, perceived as the most secure asset class in the world, making them particularly appealing to foreign central banks, as well as to private banks and insurance companies, who have historically held large quantities of Treasuries. Third, the purchase of Treasuries by foreign states was encouraged by Washington using both carrots and sticks, with governments reluctant to invest in American debt often given a simple choice: buy our debt, or will we will destroy you. We will delve further into why and how Treasuries became the foundation of global finance. For now, however, the important point is that America has been able to borrow ever greater sums of money at relatively cheap rates of interest because of huge global demand for US Treasuries. American privilege, American power It is the "privilege" of having access to an uncapped credit line (via the sale of Treasuries) and cash flow (via the creation of dollars) that has, more than any other factor, granted and sustained America's "superpower" status. Military might, while important, is secondary here. Why? Because this military power is itself contingent upon America's capacity to borrow and spend far beyond its means. Indeed, the financing of a "military industrial complex" as colossal as ours—more costly than Russia, China, and Europe's militaries combined—would bankrupt any nation without access to practically limitless amounts of cash. Likewise, any nation that maintained the kind of "trade deficit" that the US has for decades sustained, whereby we produce and export vastly less than we import and consume, would quickly become insolvent and deprived of its living standards. The reason we have not yet suffered this fate is that we have been able to sell the world our dollars in exchange for their stuff. Better yet, many counties have been willing not only to sell us their stuff in exchange for our dollars (which they needed to conduct international trade) but also to reinvest these dollars into US Treasuries and the US stock market, thereby sustaining the American debt market and enriching the top 10% of American households. If this system seems too good to be true, it is because it is fundamentally unsustainable, totally contingent upon the world's willingness to play along—and on our ability to bash countries over the head who refuse to do so. Both this willingness and this ability are now ending, after having been progressively diminished since 2008, and then mortally wounded during the critical years of 2016-2024. Indeed, our "privilege" would have died on its own, without tariffs. But Trump has now fast-tracked the process by precipitating a global trade war, whose real purpose is likely to crush the world economy in the (misguided) hope that America will suffer less than the countries it aims to destroy: namely, China and its allies. The hope may be to ensure that, by wrecking the global economy—and, most importantly, sending China into depression—America will be in a relatively stronger position to organize a Breton Woods 2.0. This is nothing but war by other means (and, indeed, trade wars have historically tended to catalyze hot ones). In a war, your side may suffer heavy losses. But the hope is that your opponent will suffer more. This is the most probable explanation for Trump's tariffs. There is a possibility, of course, that the people around Trump are simply economic ignoramuses. But, when one ignores what the administration is saying and focuses on geopolitics, the rationale (as obscenely reckless as it is) for the tariffs seems to come into focus. The end of America's privilege That the erosion of America's exorbitant privilege began long before "Liberation Day," 2025, is evidenced in the numbers: In 2001, over 70% of global foreign currency ("FX") reserves were held in dollars. By 2024, that number was down to about 54%. More significantly, in 2008 foreign central banks held over 40% of their outstanding securities in the form of US Treasuries. In 2024, that number had fallen below 15%. Perhaps most tellingly of all, the end of America's privilege is evidenced by the gold price, which just keeps rising as the dollar keeps depreciating (in both real and now relative terms) and the market for US Treasuries keeps narrowing, with few nations still buying American sovereign debt. Why is the gold price so important here? Because, to repeat, gold is the only real alternative to US Treasuries and dollars, especially for foreign governments keen to diminish—if not eliminate—their reliance on American debt and currency. Given that the gold price has been so far driven upwards by the aforementioned furious buying by foreign central banks, who are rotating away from US Treasuries and into precious metals, gold's rise is coincident with the decline in demand for America's two biggest exports: debt and dollars. Why do foreign governments want to reduce their dependence on the US financial system? The answer is not complicated: As American politics and finance descend further into a bipartisan festival of mendacity, mediocrity, violence, arrogance, and historical amnesia, foreign states, especially those outside NATO's orbit, want out from under America's thumb. This desire to break free from the US will continue regardless of whether the Republicans retain power: indeed, it was Biden who supercharged the movement away from US dollars and debt, as we will see in the following post. A return of the Democrats, in other words, will do nothing to assuage foreign states looking to decouple from the US. (Like it or not, the fact that recent "Hands Off" protests put defending NATO, which most non-Western states see as a purely offensive alliance, on the same list as defending welfare and women's rights will be read by the non-Western world that the Democrats, if re-empowered, will continue the same policies of Western supremacism as the current administration and its predecessors). How did we get here, on the verge of losing what has sustained American power for the better part of a century? The answer does not begin with Trump—though, as stated, he is now leading us off the cliff towards which we had already been charging. To appreciate the real causes of our current predicament, we now move from the mechanics of America's exorbitant privilege to the role of gold in first developing, and now defenestrating, American financial hegemony. By sketching the place of gold in the at once economic and geopolitical storms long brewing and now thundering forth, we will be in a far better place to make sense of what is happening in the world today. This Substack is reader-supported. To receive new posts and support my work, consider becoming a free or paid subscriber. You're currently a free subscriber to Philip Balboni, PhD. For the full experience, upgrade your subscription.
© 2025 Philip Balboni
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