Posted on 08/15/2021 8:06:20 AM PDT by DoodleBob
Fifty years ago this Sunday, President Richard Nixon announced a bold economic plan, including the severing of the U.S. dollar’s ties to gold. Since then, the world’s monetary system has consisted of (mostly) freely floating currencies. The dollar nonetheless remains the primary legal tender used internationally for trade, finance, and as a store of value, which has conferred upon the U.S. enormous advantages. Whether that will continue for the next half-century is far from certain.
The Bretton Woods system, in effect back then, reflected America’s economic pre-eminence after World War II. Currency exchange rates were fixed, relative to the dollar, which, in turn, was exchangeable for gold at a fixed $35 an ounce. The idea was to avoid the currency instability and competitive devaluations of the 1930s, but with greater flexibility than allowed under the classical gold standard, which most economists agreed had helped trigger and spread the Great Depression.
But the Bretton Woods regime led to a trilemma: Countries couldn’t simultaneously have fixed exchange rates, free capital flows, and independent fiscal and monetary policies. They could choose only two of the three. A fixed exchange rate essentially meant adjusting economies to a nation’s currency, requiring restrictive policies when inflation rose or trade accounts went into deficit.
Nixon chafed at those constraints, especially as he looked ahead to the 1972 elections. “What mattered most to his reelection prospects was national economic growth and especially lower rates of unemployment,” says Yale School of Management dean emeritus Jeffrey E. Garten in Three Days at Camp David, his new book on the momentous events of a half-century ago.
(Excerpt) Read more at barrons.com ...
We should never have left the clam shell standard, that was the whole problem.
Aa long as the progressive leftist cancer is destroying America then no way the dollar currency remains credible. While I doubt China or anybody else wants to knock off the dollar eventually there will have to be somw sort of replacement for the “reserve” currency.
With the value of the dollar propped up because of its use for trading commodities, removing gold as the payment for international transactions allowed the US to run unlimited trade deficits without the dollar depreciating as much as it should have.
At the same time, enormously expensive, new environment regulations burdened American heavy industry and we opened the doors to predatory mercantilist trading partners like Japan and Taiwan.
In some cases, like consumer electronics, the US government deliberately made deals to allow discriminatory trade practices to buy diplomatic support. Johnson did this with Japan to buy support for the Vietnam war. The result was that Japan cut off imports of US consumer electronics and within about ten years annihilated the entire US sector.
Removing the last peg to gold also unconstitutionally transferred control of the currency from Congress to the Federal Reserve because the only way to set the value of a currency became the control of interest rates.
An unmitigated disaster by every possible measure.
Up to WW II any creditable currency was pegged to a gold/silver standard, which would have included the money of Washington’s time as President. While WWII destroyed most economies of the world, the United States prospered. The only way to restart international economic activity was for the U.S. to take the lead, which it did with the Bretton Woods Agreement, and thereby became the international reserve currency.
Therefore, once again there was a U.S. gold standard, but Americans could not take their Federal Reserve Notes to a Fed bank and trade them for gold. When the Treasury in 1964 began producing dimes through dollars without silver, silver coins disappeared from circulation. Until about 1968 people could still trade their Federal Reserve notes for Silver Certificates and trade those for packets of silver from a Federal Reserve Bank.
At this time, the working careers of a single generation comprise the totality of comprehension for how the international community was to function economically without currencies emerging from things people can touch and see. Government banks worldwide are using the same strategy of creating fiat money to push their economies along, and are clueless about any side effects.
I recall this time. I was 11, and had found an FM radio station (KZAP) in Sacramento that aired a program called The Rawhide Reality Review. A mix of news and call-ins. Host spoke of the change, and urged everyone to go out and buy up as much gold as possible, immediately. His message was something like “We’re going to go off of the Gold Standard, but humanity isn’t. Look forward to rapid inflation as the dollar de-values. Gold prices is U.S. dollars will very quicklybe roughly ten times what they are now.”
The biggest thef in history is the federal government stealing the purchasing power of the dollar, and it all started with Nixon.
Sorry for the long link. 50 year gold price chart adjusted to 1980 CPI.
Last high, 1980. Low since then...right now.
Yes, thank goodness for assets that outrun inflation.
In 1971, Nixon faced “Triffin’s Paradox” full-on: maintain the power of Fed.gov, US built global monetary system and its elites, or begin to withdraw the use of the US Dollar and limit the power of Fed.gov to focus on the well-being of American workers, savers and middle-class.
He chose the globalist and deep state
That was a great prediction for the next 8 years.
I have long regarded R.M.Nixon as a RINO but I would NOT saddle him with this exclusivity for starting this trend! FDR, in STEALING the US Citizen's right to own gold (1933) by his confiscation orders, did far more than 'tricky Dick' ever did!
The maintenance of that system also meant that the US had to "lead by example," as though following the laws of war when fighting against savage regimes and peoples who had no respect for those laws could ever lead to success.
As a consequence every major engagement by the US since 1945 has been at best a draw and usually a defeat, because our leadership is more tied to virtue signaling than actually winning. In addition, the system became corrupt as more and more of the elite in both business and government made money selling out the interests of the United States, all in the pursuit of "world peace" and "free trade."
When the people finally responded by electing an outsider as President, the deep state responded with an attempted soft coup d'etat and worked with the opposition party (and many Republicans) to install
However, insofar as the gold standard, Nixon was in a rock and a hard place. FDR had made ownership of gold bullion by private US citizens illegal. The only exchange of reserve notes for gold was thus by foreign countries. The federal reserve was also printing more reserve notes than we had gold to back them.
Charles D'Galle had the french government exchanging reserve notes for gold, and was encouraging other countries to do the same, which led to a drain of US gold (meaning more reserve notes were backed by an ever decreasing amount of gold).
Nixon basically faced two choices: potential U.S. default, or remove us (and the world) from the gold standard.
Nixon sucked in a lot of ways, but he inherited this problem.
Gold and the dollar diverged, and we had the opportunity (under Reagan, if I recall correctly) where we could've resumed the gold standard, but did not. Since then, we have printed ourselves into oblivion.
Empirically, inflation and gold price changes are statistically tenuous to uncorrelated. Thus, had we stayed pegged, it is arguable that gold manipulators would exercise undue control on the US. Parenthetically, if peole dumped financial assets in favor of gold every time since Nixon that some TEOTWAWKI chicken little had his head on fire (while pushing freeze-dried food and newsletter sales), a mass of wealth creation would have been lost.
I understand the historical allure of gold. But if the SHTF, people want food, water, shelter, and ordnance. Look at the past 18 months - TP was more in demand, and maybe booze and coffee as well. Gold will simply be a good paperweight if trouble comes, and there is temporal evidence that gold is being replace by digital currencies as the SHTF storer of value (though I trust that asset less than gold).
Gold isn't bad, but it's not a divine asset.
That said, if Nixon's motivation for floating was political because, among other things, his wage and price controls were fouling up his re-election chances, then getting him for Watergate was like getting Capone for tax evasion.
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