Monetary mayhem: the world's central bankers are creating currency and "out of thin air" at an astounding rate. The consequences will be devastating.(ECONOMY)(Viewpoint essay)

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Gold fever is back, with futures surging to an all-time high above $880 an ounce on January 8, after enjoying a run-up in 2007 of nearly 32 percent against the dollar. Gold for February delivery hit $880.30 an ounce on the New York Mercantile Exchange, breaking its previous record of $875, set in 1980 and then crossed over the $900 barrier, hitting $916 an ounce on January 15.

The price of gold is skyrocketing because investors worldwide are fleeing hyper-inflated housing markets and dumping the dollar along with other depreciating currencies. Despite claims by establishment economic gurus who insist that the U.S. economy is still robust, millions of investors now believe what THE NEW AMERICAN has been saying for the past several years: the fantastic escalation of real-estate prices of the past decade was a classic bubble caused by easy credit and inflated dollars, both of which are the result of policies by the Federal Reserve and its sister central banks overseas.

"In the 21st century, the U.S. economy has been driven by consumers going deeper in debt," noted former Reagan Treasury official Paul Craig Roberts in early December. "Consumption fueled by increases in indebtedness received its greatest boost from Fed Chairman Alan Greenspan's low interest rate policy. Greenspan covered up the adverse effects of offshoring on the U.S. economy by engineering a housing boom. The boom created employment in construction and financial firms, and pushed up home prices, thus creating equity for consumers to spend to keep consumer demand growing."

How big a bubble did this create? According to Dean Baker of the Center for Economic and Policy Research, "The housing bubble created more than $7 trillion in housing wealth." And homeowners "have used this bubble wealth to support a surge in consumption over the last five years, pushing the saving rate to near zero.

They borrowed against their home equity to pay for vacations, new cars, or just to meet necessary expenses." Now the chickens are coming home to roost, with a glut of unsold homes on the market, housing prices in steep decline, and foreclosure rates going through the roof in most markets. But Federal Reserve Chairman Ben Bernanke and his central banker confreres continue to deceive their publics about the extent of the problem.

"While the Fed chairman and other leading economists assured the public that the problems would be restricted to the subprime segment of the housing market, this assertion was always ridiculous on its face," notes Dean Baker. "Subprime mortgages accounted for one-fourth of all mortgages issued in 2006," continues Baker. "The equally troubled Alt-A mortgage category accounted for another 15 percent. With segments that account for 40 percent of the mortgage market going into convulsion, there was no way that the housing market as a whole would not be affected. Of course, record supplies of unsold new homes and vacant homes also ensured that there would be substantial downward pressure on house prices."