Since the Reagan administration, a deep schism has become entrenched in America between two systems that were meant to function in tandem: the real economy—the economy of production, goods, and services—and the financial system—the economy of money, assets, and markets. This divide was paved by an earlier decision, when the Nixon administration severed the dollar’s link to gold in 1971, thereby ending the Bretton Woods system, which had pegged the dollar to gold at a fixed rate of thirty-five dollars per ounce. As a result, the dollar was freed from any tangible anchor that could regulate its expansion.

The consequence of this shift is that American financial wealth can rise even as the real economy stumbles. Output may grow by less than 3%, or even contract, while financial wealth indicators continue to climb remarkably! Stock market indices often surge at the very time company records show weakness in production, sales, or profits. The index goes up, while the factory declines.

To understand this mechanism, one must grasp how dollars are issued. What grants America its unique ability to issue debt and currency, without its value collapsing, is global demand for the dollar. One pillar of this demand is the petrodollar system: since the mid-1970s, through a pivotal arrangement with Saudi Arabia within OPEC, oil has been priced exclusively in dollars worldwide. Since every country needs oil, each requires dollars to purchase it, generating constant, high demand for the currency. This demand—not simply the decision to print money—is what enables Washington to issue dollars far exceeding what its real economy produces.

In addition to the petrodollar, America issues dollars to cover its budget deficit, which amounts to a trillion dollars or more annually. The system has even extended beyond U.S. borders through swap lines, through which the Federal Reserve provides dollar liquidity to central banks around the world during crises. When the COVID-19 pandemic struck in 2020, oil sales plummeted and the need for liquidity peaked. The Fed’s balance sheet expanded unprecedentedly by trillions of dollars—unbacked by real production. The result was a record wave of inflation; whose effects continue to burden the American economy to this day.

Herein lies the core paradox: every dollar issued is either a temporary debt that must be repaid or a counterpart to trade conducted outside the productive economy. The money supply does not necessarily correspond to actual goods and services. Hence, the illusion is born: an observer sees a strong surge in financial markets, as occurred during the peak of the pandemic, while real production nearly grinds to a halt. So, what happens when these dollars, however abundant, cannot find enough goods to purchase? Inflation follows, and prices rise. This is precisely America’s situation today: high oil prices, a record deficit, a growing money supply, and prices at historic highs.

In short, the separation between the real economy and the financial system produces a sharp paradox: one side celebrates monetary growth, while the other is scorched by rising prices. While this paradox weighs heavily on the average individual, it revitalizes the accounts of the few. The general public in America today suffers from increased costs across the board, most notably fuel prices, while major oil companies—ExxonMobil, Chevron, Shell, and BP—celebrate record profits. Stock market indices have also risen sharply over the past six months: the Dow Jones by 11.3%, the S&P by 17.7%, and the Nasdaq by 23.9%. In contrast, the consumer price index for goods and services, including energy and food, reached 3.4%—a figure nearing the 4% red line that heralds a potential storm, one that could lead to a financial and economic catastrophe like that of 2008–2010.

How long can this situation last before culminating in a collapse similar to 2008–2010? It is difficult to estimate time-wise, but possible to assess by the conditions that could trigger it. The first such condition is a popular movement driven by high prices, in which ordinary people withdraw their money from financial markets and major companies begin laying off technical and labor personnel to cut costs—exactly as occurred prior to the 2008 collapse. The second is a sharp drop in global oil prices, which would leave the Federal Reserve facing piles of dollars without corresponding demand; we caught a glimpse of this in spring 2020 when some oil futures contracts briefly traded at negative prices due to storage constraints.

The ongoing wars in Ukraine and the Middle East also carry significant potential to ignite a financial-economic catastrophe. Both conflicts are largely funded by high oil prices. Should oil prices drop sharply, war financing would become prohibitively expensive, and virtual wealth may prove incapable of simultaneously funding both the war economy and daily civilian needs. Conversely, if these wars were to stop, oil prices would likely fall to pre-war levels or even lower. This would lead to a sharp decline in demand for the dollar—the backbone of the American financial system. Today, the global financial system, led by the dollar, is balancing on a razor’s edge. If oil prices fall under immense pressure from consumer and producer markets, or if the wars cease due to regional or international political developments, there is a high probability of collapse in either scenario.

In summary, the schism between the real economy and financial (dollar-denominated) wealth remains a latent cause capable, at any moment, of triggering a dual collapse in both the financial and economic systems. This is because the structure of capitalism, particularly its American variant, inherently contains the seeds of its own fragility. When conditions align, what appears today as financial strength may reveal itself to be its weakest link.

In conclusion, it must always be remembered that unless the world returns to the gold standard as the basis for currency, it will remain subject to continuous fluctuations that ravage economies and resources, stripping millions of people of the most basic requirements for a secure life. Such a system cannot be restored under an international order dominated by America—with all its greed, selfishness, and injustice—but only under the Second Khilafah Rashidah (rightly-guided Caliphate) on the Method of the Prophethood, which will come to be soon, by the Permission of Allah (swt).