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Financial Times - When Richard Nixon destroyed the Bretton Woods International Monetary System in 1971 by closing the "gold window" at the Treasury, he severed the last link between dollars and gold.  What followed was a spiraling proliferation of increasingly spurious credit instruments denominated in a debased currency.  The most glaring and lethal example of this madness has been the growth of the unregulated derivatives market, which has ballooned in size to $600,000bn, the equivalent of almost $100,000 per person on Earth.  

The Bretton Woods collapse severed the link between the world's currencies and gold.  Central banks were then free to create as much money as they wished.  Between 2001 and today, central banks outside the US created the equivalent of about $6,000bn.  This can be seen in the seven-fold increase in foreign exchange reserves in that period.  The money created (which accounted for most, if not all, of Federal Reserve chairman Ben Bernanke's so-called global savings glut) was used to buy dollars and suppress the value of the currencies of US trading partners to perpetuate their trade advantage.  

When those dollars were reinvested in dollar-denominated assets, it was America's turn to bubble.  As central banks bought up US treasury bonds, they drove up their price and drove down their yields.  However, there were not enough new Treasury bonds being issued to absorb the rest of the world's trade surplus earnings, so central banks bought Fannie and Freddie debt as well.  That allowed those government-sponsored enterprises to acquire or guarantee more than half of all the mortgages in the country before they failed.  Between unnaturally depressed interest rates and the buying spree by Fannie and Freddie, US property prices surged.  The US housing bubble followed the ill-fated Nasdaq bubble.  However, the inflation of the US housing market was one bubble too far.  When it imploded, the global financial system was hurled into crisis, leaving the 21st century version of Anglo-American financial capitalism discredited.  

The lesson that must be learnt from this disaster is that "free market" capitalism under a fiat money regime does not produce the same blessings (sustainable prosperity) that are produced by true free market capitalism within a monetary system anchored by gold.  

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