The price of an ounce of gold in US Dollars is now $1005.70, while the price of an ounce of silver is $16.73.  If you’ve studied history and economics, you know that the change in the price of precious metals(PRs) is an indicator of what is going on in an economy. If the prices of the metals soar, we know that the currency has been debased and that the prices of the precious metals are high because of inflation. If we compare the current financial crisis to the recession of the 1980s, we realize that this economic crisis is far from over.

When you hear about pundits on TV talking about the Federal Reserve cutting a “key” interest rate, the pundits are talking about the federal funds rate. The federal funds rate and the price of gold are important numbers when used to look at the stability of an economy and whether inflation is a factor or not. The federal funds rate is an interest rate that restricts the amount of money the Federal Reserve Bank can lend or print.  During the 1980s recession, Paul Volcker, who was then the chairman of the Federal Reserve Board, raised the federal funds rate to over 20% in order to combat inflation.  Currently, Helicopter Ben(Ben Bernanke) has lowered the interest rate to around 0.16%.  Here is a historical chart of the federal funds rate:

The Federal Reserve has repeatedly stated that interest rates will be kept between 0.00% and 0.25% for years to come. This allows the Fed to print money out of thin air and destroy the US Dollar. Paul Volcker raised interest rates because he realized that the Federal Reserve was out of control and that low interest rates would result in hyperinflation.

In the late 1970s and the early 1980s, the price of gold rose above $600 because of artificially low interest rates. After the lowering of the federal funds rate, the price of gold dipped several hundred dollars. Even within the last 5 years, the price of gold has doubled and is continuing to rise. The current economic crisis could take one of two paths: hyperinflation or deflation. Hyperinflation would only prolong the inevitable. Deflation, however, would solve the inflationary crisis.