Cryptocurrency: Celebrating 50+ years of Monetary Debasement and Debt That Politicians Put On Your Head
Why Big Government Statists Despise Gold https://economicprism.com/why-big-government-statists-despise-gold/ https://www.youtube.com/watch?v=iRzr1QU6K1o Total Liar Fraud Richard Nixon Axes Gold, Spawns Crypto Movement Did you get a 5.4 percent raise this year? If you answered no, then your income is being systematically diminished by the federal government’s coordinated policies of dollar debasement. You see, according to the Bureau of Labor Statistics, consumer prices increased 5.4 percent over the last 12 months. So if your income didn’t increase by a commensurate 5.4 percent, then you are earning less than you were just one year ago. The fact is price inflation acts as a hidden tax. It’s the government’s underhanded way to increase spending without overtly increasing taxes. Yet the tax still takes place, as the dollars in your biweekly paycheck become worth less and less. The primary culprit of rising prices is the over issuance of federal reserve notes by the Treasury via deficit spending. This debt based money enters the economy through government transfer payments and other spending programs. There, it competes with the existing stock of money to buy goods and services. Prices rise, accordingly. Through the first 10 months of Washington’s fiscal year, which ends on September 30, the federal government has run a budget deficit of 2.54 trillion. Of this, $800 billion – or about a third – of this debt was purchased by the Federal Reserve with credit created from this air. If you recall, since July 2020, the Fed has been buying $80 billion of Treasuries per month. The failure of these dollar debasement policies to support a balanced and healthy economy is grossly evident. Asset prices have been inflating for over a decade. At the same time, wages have generally stagnated. This has resulted in a massive wealth gap. Still, for the control freak central planners, operating within the monetary constraints of a stable money supply and the fiscal constraints of a balanced budget are out of the question… Out of Control Finances To somehow correct this disparity, the federal government is proposing to go on another spending boom. Just this week, for instance, the Senate agreed on a $1 trillion infrastructure bill. The bill approves $550 billion in new infrastructure spending, which is in addition to $450 billion that has already been approved. What’s in it? We don’t know. But 2,700 pages of Congressional quid pro quo is surly full of abject waste. But that’s not all… Up next is the $3.5 trillion human infrastructure social spending bonanza. Perhaps the kabuki theatre of the approaching debt ceiling faceoff will pare back the package a slight bit. But nothing on the order that any reasonable person would consider responsible. Obviously, Washington doesn’t draw enough in tax receipts to cover this new spending. And the new debt that will be added to the already massive $28.6 trillion national debt is far too big to be honestly repaid. Thus it will be paid via the printing press; that is, through the stealth default of dollar debasement. Curiously, in this environment of rising consumer prices, massive deficits, and immense money supply expansion, the dollar, in relation to foreign currencies and gold and silver, is rising. One year ago, an ounce of gold cost over $2,000 per ounce. Now it’s about $1,755. And year to date, the dollar, as measured by the dollar index, has appreciated 3.41 percent. What gives? If you hold physical gold and silver as a form of wealth insurance, which you should, don’t pay attention to the ups and downs of gold’s price movements. With the outright reckless abandoned of the spendthrift politicians in Congress, gold’s price in dollar terms is guaranteed to rise over the next decade. You can count on it. Gold will ultimately shine. Not because of its luster. But, rather, out of necessity. Unlike gold, which has no debt obligation or counterparty risk, dollars – and dollar based debt instruments, like bonds – can expire worthless when their promissory obligation is defaulted on. Alternatively, they can be inflated to nothing when a desperate Federal Reserve, in concert with an overpromised Treasury, moves to dropping suitcases of money from helicopters over major urban centers. Without question, government finances are completely out of control. How we got to this disagreeable place is a long story. But one of the major milestones in this misadventure was reached nearly 50 years ago. We’d be remiss not to mention it… Why Big Government Statists Despise Gold Gold to paper currency conversion once exacted limits upon the public purse. The Treasury, in concert with the Federal Reserve, could not issue unlimited debt based money. But that was before the U.S. severed the dollar’s relationship to gold and commenced the dollar reserve standard. Prior to 1971, as determined by the Bretton Woods international monetary system, which was agreed to in Bretton Woods, New Hampshire, in July 1944, a foreign bank could exchange $35 with the U.S. Treasury for one troy ounce of gold. After the U.S. reneged on this established exchange rate, when foreign banks handed the U.S. Treasury $35, they received $35 in exchange. The dirty deed was done by President Nixon on August 15, 1971 – nearly 50 years ago. To be fair, Nixon was merely playing the hand he’d been dealt. And thanks to LBJ’s guns and butter program of the 1960s, the dollar had been exceedingly debased from its $35 conversion rate. Johnson attempted a Band-Aid fix in 1968 to suppress the price of gold with a two-tier system of official exchange and open market transaction. This intervention was quickly exposed to be at odds with reality. The lie that $35 dollars were equal to one ounce of gold could no longer stand up. The weight of reality, and U.S. inflation of the money supply, had overwhelmed it. However, the lies didn’t stop with the end of the Bretton Woods international monetary system. In fact, the end of Bretton Woods commenced with a lie… Specifically, Nixon announced that he would “temporarily” suspend the convertibility of the dollar into gold. This temporary measure has proved to be permanent. You can witness Nixon’s announcement via this video link. Quite frankly, you cannot watch this video often enough. For it provides a perfect example of a government official lying as soon as he opens his mouth…and with every single sentence uttered. It also imparts a disturbing amount of economic illiteracy. At the end of the day, big government statists despise gold backed money because it limits the scope and scale of their reach. Alas, as the lowlifes in Washington destroy the dollar, new crackpot schemes will be rolled out. This will likely be in the form of government issued digital dollars that track and influence when and how you spend your money. Like Nixon reneging on Bretton Woods nearly 50 years ago, these will be desperate measures of a desperate political class.
Nixon's Gold Treachery Made Me A Cynic https://www.aier.org/article/nixons-gold-treachery-made-me-a-cynic/ https://www.presidency.ucsb.edu/documents/address-the-nation-outlining-new-e... https://books.google.com/books?id=z1HPAAAAMAAJ&pg=PA38&lpg=PA38&dq=washington+%22ruin+commerce,+oppress+the+honest,+and+open+the+door+to+every+species+of+fraud+and+injustice%22 https://fee.org/articles/money-the-great-gold-robbery/ https://www.nytimes.com/2008/01/17/news/17iht-20benbernanket.9285552.html https://www.usinflationcalculator.com/ Fifty years ago, on August 15, 1971, President Richard Nixon announced that the U.S. government would cease honoring its pledge to pay gold to redeem the dollars held by foreign central banks. Nixon declared he was taking “action necessary to defend the dollar against the speculators.” But there was no way to defend the dollar against politicians. Nixon touted his default as therapy for his tormented fellow citizens, promising it would “help us snap out of the self-doubt, the self-disparagement that saps our energy and erodes our confidence in ourselves.” Nixon wrapped his decree with lofty political rhetoric, appealing to the nation’s “greatest ideals” and promising a “new prosperity” that “befits a great people.” The dollar thus became a fiat currency – something which possessed value solely because politicians said so. Nixon spurred the Federal Reserve to create an artificial boom to boost his reelection campaign. To suppress the damage from a flood of new money, he imposed wage and price controls, making it a crime to raise prices without government permission. At that time, I was working in a peach orchard in rural Virginia for 10 hours a day, reaping $1.40 an hour and all the peach fuzz I could take home on my arms and neck. Nixon’s wage controls doomed any chance of getting that raise to $1.45 an hour. But no loss – I was leaving that job soon to go back to high school. I was 15 at that time and an avid coin collector. I soaked up the rage at the reckless federal policies that permeated Coin News and other numismatic publications. “Government as scoundrel” was the theme of many editorials and articles I read in those periodicals in the following months and years. I had no savvy on economics but my gut sense told me something was profoundly amiss. Nixon’s decree spurred my reading and researching. Nixon’s gold default was also a landmark for America’s rising economic and political illiteracy. In the era of this nation’s birth, currency was often recognized as a character issue – specifically, the contemptible character of politicians. Shortly before the 1787 Constitutional Convention, George Washington warned that unsecured paper money will “ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” The Coinage Age of 1792 established gold and silver as the foundation for the nation’s currency and authorized a death penalty for anyone who debased the nation’s gold or silver coins. Unfortunately, politicians later exempted themselves from penalties for debasing the currency. In 1933, the U.S. had the largest gold reserves of any nation in the world. But fear of devaluation spurred a panic, which President Franklin Roosevelt exploited to seize people’s gold. FDR denounced anyone who refused to turn in their gold as a “hoarder.” Any citizen caught with more than $100 in gold coins faced ten years in prison and a $250,000 fine. (The penalty was not as harsh the Soviet Union’s death penalty for anyone caught “hoarding” wheat from a collective farm.) FDR asserted that banning private ownership of gold was necessary to give government “freedom of action” – which he quickly exploited by devaluing the dollar by 59% with a decree raising the value of gold from $20 an ounce to $35 an ounce. Treasury Secretary Henry Morgenthau hailed the gold policy as part of the administration’s “plans for a restoration of public confidence,” but the de facto default on government debts set the precedent for boundless federal arbitrariness for the rest of the decade. FDR tried every trick to drive up prices, foolishly confident that a mere change in numerical prices would spawn prosperity. The resulting inflation was invoked in the early 1940s to help justify imposing payroll tax withholding. In the mid-1960s, the dollar was under pressure from perennial federal deficit spending and President Lyndon Johnson responded by eliminating all the silver in new dimes and quarters. After severing the dollar’s link to silver, LBJ demanded that the Federal Reserve pump up the economy. He even summoned Fed Chairman William McChesney Martin to his Texas ranch and “physically beat him, he slammed him against the wall, and said, ‘Martin, my boys are dying in Vietnam, and you won’t print the money I need,'” according to Dallas Federal Reserve president Richard Fisher. Since LBJ didn’t murder Martin at his ranch, the media could continue to portray the Federal Reserve as “independent” of political control. The Fed accommodated LBJ sufficiently that the inflation rate more than tripled between 1964 to 1968, rising from 1.3% to 4.3%. The rising inflation set the scene for Nixon’s gold repudiation. FDR’s prohibition on private gold ownership contained a loophole for rare coins with numismatic value. Luckily, the feds did not vigorously police that exemption. By 1973, I was buying Mexican and French gold pieces to save and to sell to high school classmates and others. After I got laid off from a construction job in the summer of 1974, I saw it as a sign from God (or at least from the market) that I should buy more gold. I liquidated most of my coin collection and put all my available cash into gold and also took out a consumer finance loan at 18% to purchase even more. That interest rate was the gauge of my blind confidence. I had been closely following gold prices and was convinced a price spike was coming. Nixon’s resignation in August did wonders for the price of gold. I didn’t get rich but made enough to help cover my costs for sporadically attending Virginia Tech, with some money left over to pay for my first literary strikeouts. Though Nixon assured the nation in 1971 that “the effect of this action… will be to stabilize the dollar,” the “Nixon Shock” was “followed by a decade of one of the worst inflations of American history and the most stagnant economy since the Great Depression. The price of gold rose to $800 from $35,” as Lewis Lehrman noted. Americans have suffered 570% inflation since Nixon “stabilized” the dollar. Nixon’s gold decree and other policies helped me recognize that politicians are far more perfidious than the media portrays. If the government would intentionally destroy the value of the currency, I wondered what else it was undermining. The Watergate scandal provided further evidence of “politician” as synonym for “damn rascal.” The dissolution of the Vietnam War clinched the case as Americans learned how presidents had conned the nation into a pointless Asian bloodbath. Gas shortages and gas lines beginning in late 1973 confirmed that any cadre of “best and brightest” in Washington was an optical illusion. Fifty years after Nixon’s betrayal, America is again facing rapidly increasing inflation. The Biden administration is embracing almost boundless deficit spending in its quest to throw unrestricted free money at any non-millionaire who might vote for Democratic candidates. Most of the fawning media coverage on Biden policies is as economically illiterate as the cheerleaders for Nixon’s chicanery long ago. If the government continues on this path, it is only a question of time until fresh debacles result. But from the economic wreckage, a new generation of cynics may arise who do a far better job of putting politicians back on a leash.
Wall Street Journal Proves It Doesn't Understand Gold https://www.dollarcollapse.com/wall-street-journal-gold/ https://www.wsj.com/articles/gold-as-an-inflation-hedge-what-the-past-50-yea... Gold bugs should never assume that the mainstream investing community actually understands finance. That includes the Wall Street Journal, which recently published an article (Gold as an Inflation Hedge: What the Past 50 Years Teaches Us) purporting to show that gold does not protect against a depreciating currency. The article begins with a couple of subheads… On the anniversary of the metal’s unleashing by Nixon, gold’s believers may be disappointed by the record Investors often think that gold is the answer to inflation. It’s not that simple, as the past 50 years have shown. …and then attempts to prove those points graphically with a chart comparing gold to stocks and bonds: Its conclusion? Pretty much everything has gone up since the US left the gold standard in 1971, and the things that went up most – stocks — are by definition the best “inflation hedges,” while bonds are just about as good as gold. So what’s wrong with this argument? Simply put, gold is not an “investment”. It is money. You don’t own it in place of Amazon stock or Treasury bonds, you own it in place of the dollars that might otherwise be in your pocket, your bank account, or under your mattress. Here’s a picture that’s as clear as the previous one is obscure. Two piles of dollars and coins. The one on the right is the amount that was required to buy an ounce of gold in 1920. The other, massive pile is the number of dollars it takes to buy an ounce of gold today. The upshot: gold has protected its owners’ purchasing power while the dollar has been depreciated to oblivion. That is the definition of “inflation hedge.”
'A Day That Should Live In Infamy' - Peter Schiff: 50 Years Ago, Nixon Slams Shut The "Gold Window" https://schiffgold.com/key-gold-news/50-years-ago-nixon-slams-shut-the-gold-... https://www.youtube.com/watch?v=7_Xw5tWsOQo https://www.presidency.ucsb.edu/documents/executive-order-6102-requiring-gol... https://www.officialdata.org/us/inflation/2021?endYear=1971&amount=1 https://internationalman.com/articles/how-inflation-destroys-civilization/ https://schiffgold.com/key-gold-news/us-government-spending-sure-isnt-transi... https://www.forbes.com/sites/greatspeculations/2021/01/25/the-gold-standard-... https://mises.org/blog/jim-grant-explains-gold-standard Fifty years ago this week, President Richard Nixon slammed shut the “gold window” and eliminated the last vestige of the gold standard. Nixon ordered Treasury Secretary John Connally to uncouple gold from its fixed $35 price and suspended the ability of foreign banks to directly exchange dollars for gold. During a national television address, Nixon promised the action would be temporary in order to “defend the dollar against the speculators,” but this turned out to be a lie. The president’s move permanently and completely severed the dollar from gold and turned it into a pure fiat currency. This isn’t the kind of anniversary you celebrate – but it is one worth remembering. To mark this ignoble date, SchiffGold is running a special for this week. For more information, follow this link. Nixon’s order was the end of a path off the gold standard that started during President Franklin D. Roosevelt’s administration. June 5, 1933, marked the beginning of a slow death of the dollar when Congress enacted a joint resolution erasing the right of creditors in the United States to demand payment in gold. The move was the culmination of other actions taken by Roosevelt that year. In March 1933, the president prohibited banks from paying out or exporting gold, and in April of that same year, Roosevelt signed Executive Order 6102. It was touted as a measure to stop hoarding, but was, in reality, a massive confiscation scheme. The order required private citizens, partnerships, associations and corporations to turn in all but small amounts of gold to the Federal Reserve at an exchange rate of $20.67 per ounce. In 1934, the government’s fixed price for gold was increased to $35 per ounce. This effectively increased the value of gold on the Federal Reserve’s balance sheet by 69%. The reason behind Roosevelt’s executive order and the congressional joint resolution was to remove constraints on inflating the money supply. The Federal Reserve Act required all Federal Reserve notes have 40% gold backing. But the Fed was low on gold and up against the limit. By increasing its gold stores through the confiscation of private gold holdings, and declaring a higher exchange rate, the Fed could circulate more notes. While American citizens were legally prohibited from redeeming dollars for gold, foreign governments maintained that privilege. In the 1960s, the Federal Reserve initiated an inflationary monetary policy to help monetize massive government spending for the Vietnam War and Pres. Lyndon Johnson’s “Great Society.” With the dollar losing value due to these inflationary policies, foreign governments began to redeem dollars for gold. This is exactly how a gold standard is supposed to work. It puts limits on the amount the money supply can grow and constrains the government’s ability to spend. If the government “prints” too much money, other countries will begin to redeem the devaluing currency for gold. This is what was happening in the 1960s. As gold flowed out of the U.S. Treasury, concern grew that the country’s gold holdings could be completely depleted. Instead of insisting on fiscal and monetary discipline, Nixon simply severed the dollar from its last ties to gold, allowing the central bank to inflate the money supply without restraint. When he announced the closing of the gold window, Nixon said, “Let me lay to rest the bugaboo of what is called devaluation,” and promised, “your dollar will be worth just as much as it is today.” This was also a lie. The dollar has lost more than 85% of its value since Nixon’s fateful decision, based on the CPI calculator. The purchasing power of a 1971 dollar is equal to about 15 cents today. Meanwhile, the dollar value of gold has gone from $35 an ounce to just over $1,700 an ounce today. In percentage terms, that’s a 4,757% increase. Investment analyst Nick Giambruno said this was an entirely predictable consequence of the US abandoning sound money. By every measure—including stagnating wages and rising costs—things have been going downhill for the American middle class since the early 1970s. August 15, 1971, to be exact. This is the date President Nixon killed the last remnants of the gold standard. Since then, the dollar has been a pure fiat currency. This allows the Fed to print as many dollars as it pleases. And—without the discipline imposed by some form of a gold standard—it does precisely that. The U.S money supply has exploded 2,106 percent higher since 1971. The rejection of sound money is the primary reason inflation has eaten up wage growth since the early 1970s—and the primary reason the cost of living has exploded.” Another consequence has been an enormous national debt that continues to grow at a staggering pace. Most people don’t realize it, but this is a direct and intentional result of the current fiat money system. Dollar devaluation is considered an acceptable tradeoff because a free-floating currency is exactly what the government needed. It would be impossible to fund the American welfare and warfare state with a currency constrained by gold. With the dollar untethered from any fixed standard, Uncle Sam could create as many dollars as it pleased in order to fund all of its massive social and military programs. With a free-floating fiat currency, the US government can borrow as much money as it needs, knowing that the central bank will always be there to monetize the debt and backstock the spending. And that’s exactly what has happened. As Frank Holmes put it in an article published by Forbes, “there’s been a significant and growing lack of discipline when it comes to government spending,” since Nixon’s fateful act. Before 1971, there was a natural limit to how much money could be printed. New issuances were dependent on the amount of gold sitting in the nation’s coffers. Today, with the dollar backed not by a hard asset but by the ‘full faith and credit’ of the US government, the federal debt is closing in on an astronomical $28 trillion, which is more than 130% of the size of the US economy.” To put this into perspective, in 1960, the national debt was just a little over half the size of the US economy. This is exactly what politicians like Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II, Obama, Trump and Biden wanted — the ability to spend without restraint and grow government with no limits. The result: massive national debt and devalued currency that buys the average person less and less every year. As Ryan McMaken summed up in an article on the Mises Wire: Nixon yearned to be free of this restraint so he could spend dollars more freely, and not have to worry about their value in gold. Nixon’s move was, in short, the final and total politicization on money itself.” For most people, this anniversary will pass unnoticed. But it should be a day that lives in infamy.
Ferguson: 50 Years After Going Off Gold, the Dollar Must Go For Crypto https://www.bloomberg.com/opinion/articles/2021-08-15/niall-ferguson-nixon-t... https://www.youtube.com/watch?v=iRzr1QU6K1o https://www.amazon.com/Three-Days-Camp-David-Transformed/dp/006288767X https://www.bloomberg.com/opinion/articles/2021-01-25/the-dollar-s-crash-is-... https://www.cbo.gov/publication/57263 https://www.nytimes.com/2021/07/16/books/review/jeffrey-e-garten-three-days-... https://www.nixonlibrary.gov/sites/default/files/forresearchers/find/tapes/w... https://www.piie.com/publications/wp/wp12-13.pdf https://www.federalreserve.gov/boarddocs/speeches/2004/20040220/default.htm https://www.bloomberg.com/news/articles/2020-12-15/fbi-investigating-seb-swe... http://www.jordantimes.com/opinion/harold-james/digital-nixon-shock https://www.bis.org/publ/arpdf/ar2021e3.htm https://www.bloomberg.com/opinion/articles/2021-04-04/don-t-let-china-mint-t... https://www.ft.com/content/7a93fb0a-ae95-44fc-a3d2-1398ef0ce1af https://home.treasury.gov/news/press-releases/jy0281 https://www.bloomberg.com/opinion/articles/2021-05-31/stablecoins-like-tethe... https://www.alt-m.org/2021/07/06/the-fable-of-the-cats/ https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-... https://decrypt.co/76997/elizabeth-warren-crypto-big-banks-shadowy-super-cod... https://en.wikipedia.org/wiki/Bernstein_v._United_States https://twitter.com/elonmusk/status/1423780661639344131 https://twitter.com/SenTedCruz/status/1424882343978881027 https://twitter.com/adamscochran/status/1424855832144003079 https://en.wikipedia.org/wiki/Metaverse It was Sunday night on Aug. 15, 1971, and many Americans were watching television — the most popular show that evening being the Western series “Bonanza.” (Older readers will recall that it chronicled the adventures of the Cartwright family — Ben, his three sons and their Chinese cook — on their Ponderosa Ranch in Nevada.) At 9 p.m. Eastern time, the Cartwrights and their rivals on the other two networks were interrupted by the somewhat less popular figure of President Richard Nixon. The word “bonanza,” according to the Oxford English Dictionary, was introduced into American English in the 1880s to describe a highly productive or profitable mine, such as the silver mines of the Comstock Lode in Cartwright country. Ironically, Nixon was disrupting Sunday evening to tell Americans that the days of precious metal were over. The link between the U.S. dollar and gold — a link that dated back to the country’s adoption of the gold standard nearly a century before — was to be severed. The age of fiat money — that is, of currency backed by nothing more than the credibility of the U.S. Treasury — had dawned. Not that Nixon put it like that. It’s worth watching a clip of his address to remind yourself just how terrible the production values of U.S. politics used to be. Nixon looks as if he is addressing the nation from a passport photo booth, a nasty blue curtain all but matching his equally nasty blue suit and tie. There were no teleprompters then, so he constantly looks down at his script. You would not know from his flat delivery how many hours he and his advisers and speechwriters had devoted to this historic text. Americans by now were used to presidential addresses about Vietnam. It was less usual to have a lecture on the economy on a Sunday night. However, as Jeffrey E. Garten explains in his gripping account of the speech’s origins and consequences, “Three Days at Camp David,” the announcement had to go out before financial markets opened on Monday. In his own charmless way, Nixon was dropping a bombshell. “The time has come,” Nixon declared, “for a new economic policy for the United States. Its targets are unemployment, inflation and international speculation.” There followed a succession of presidential pledges, in ascending order of radicalism: to introduce tax breaks to encourage investment; to repeal the excise tax on automobiles (but only U.S.-made ones); to bring forward planned income tax deductions (though with offsetting spending cuts); to impose a 90-day “freeze” on all prices and wages; and — the bombshell — “to suspend temporarily the convertibility of the dollar into gold.” Finally, Nixon announced a 10% tax on all imports — in a word, a tariff. For foreign leaders, finance ministers and central bankers, this was stunning. Not only would the U.S. dollar cease to be convertible into gold; the U.S. was apparently turning away from the free trade it had embraced at the end of World War II and reverting to protectionism — though this proved to be just a threat to get the Europeans and Japanese to accept the dollar devaluation. In the words of Henry Brandon, the chief Washington correspondent of the London Sunday Times, this was the “moment of the formal dethronement of the Almighty Dollar.” Except that it wasn’t.
From the distance of half a century, the most surprising thing about what the Japanese called “the Nixon shock” was precisely that it did not mark the end of the era of dollar dominance. On the contrary, the U.S. currency has only grown more important — its privilege even more exorbitant — since Nixon severed its link to gold.
There is an important lesson here for every commentator who is tempted to speculate about the dollar’s demise (and I have done it myself more than once). My old friend Steve Roach, the former chairman of Morgan Stanley Asia, made the standard case in January. Since then, the dollar has essentially flatlined, according to the trade-weighted indices produced by the Bank for International Settlements. The arguments for a dollar crisis back in 1971 are familiar to modern ears. Inflation was rising. The budget deficit was worrisome. The trade deficit was growing. And Asian and European competitors were eroding U.S. economic leadership. Nixon’s economic bombshell needs to be seen in the broader context. He and his national security adviser, Henry Kissinger, were struggling to extricate the U.S. from an unpopular war in Vietnam. They were in the midst of a bold attempt to deal directly with China’s communist government in the hope of putting pressure on the North Vietnamese and their Soviet backers. You might say that Joe Biden confronts a somewhat similar landscape (for Vietnam, read Afghanistan) except that the deficits of 2021 make the deficits of 1971 look trifling. The federal deficit in Nixon’s first term peaked at 2.1% of GDP. In the words of a July 21 Congressional Budget Office report, “At 13.4% of GDP, the deficit in 2021 would be the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year.” And that doesn’t include the $1 trillion infrastructure bill that the Senate just passed, which the CBO thinks would widen the budget deficit by another $256 billion over 10 years. Nor does it include the $3.5 trillion antipoverty and climate package that the Senate majority leader, Chuck Schumer, would also like to enact this year. As for the trade deficit, you have to squint to see one in 1971. It was a negligible $1.4 billion — true, the first trade deficit since 1893, but still tiny in a $1.2 trillion economy. The overall current account deficit at the time of the Nixon shock was 0.2% of GDP. Today it’s 3.5%. As Garten tells the story, 15 white guys (as I said, the 1970s were different) repaired to Camp David and thrashed out Nixon’s new economic policy. The Texan force of political nature that was Treasury Secretary John Connally got most of what he wanted: in particular, “to screw the foreigners before they screw us.” The losers were Paul Volcker, then a Treasury undersecretary, and the other financial technocrats who had hoped to re-engineer the Bretton Woods system — with the International Monetary Fund’s special drawing rights (a synthetic reserve currency) taking the place of gold. Yet Connally was playing the part of a wrecking ball, as Kissinger pointed out when he came to understand what was being cooked up. (He was on his way to Paris during that fateful weekend, for secret peace negotiations with the North Vietnamese.) “I will be perfectly frank with you,” Connally candidly told reporters after Nixon’s TV address. “None of us know for certain what will occur.” Politically, it delivered the boost to the administration’s popularity Connally and Nixon had anticipated. But the collateral damage to American foreign policy — as Asian and European markets and currencies went haywire — took many months to repair. Not until the Smithsonian Agreement in late December were new exchange rate arrangements in place, whereby everyone else accepted the reality of dollar devaluation. And even this did not last. First the Brits devalued, then the Italians (prompting Nixon’s famous outburst, “I don’t give a shit about the lira”). The dollar had to be devalued again in February 1973. By the end of that year most major currencies were floating — the outcome always preferred by Connally’s far more sophisticated successor as Treasury secretary, George Shultz. You can see why journalists such as Henry Brandon thought it was the end of the line for the dollar. The 1970s became a horror show of double-digit inflation. At its nadir, the dollar had depreciated by around 50% compared with the Japanese yen and German Deutschmark. Yet neither currency displaced the dollar, despite numerous prophecies of that outcome. The dollar rallied strongly in the first half of the 1980s — to the extent that there had to be coordinated intervention to weaken it under the September 1985 Plaza Accord. It had another wave of strength in the second half of the 1990s. And contrary to most predictions before the global financial crisis of 2008-9 — including the influential warnings of my old friend Nouriel Roubini, New York University’s so-called Dr. Doom — the dollar strengthened rather than weakened at times of economic stress, from the bankruptcy of Lehman Brothers Holdings Inc. to the plague of Covid-19. Why was this? Why has the dollar remained dominant despite the apparent instability of this “nonsystem” (as the economist John Williamson called it) of sometimes floating, sometimes pegged exchange rates. I offer a three-part answer. First, although the “great inflation” of the 1970s was disruptive, it proved to be curable. As Federal Reserve chair, Volcker administered the bitter medicine of higher interest rates and a recession that, combined with the supply-side reforms of President Ronald’s Reagan administration, fundamentally reset expectations. Independent central banks succeeded so well in reducing inflation that in 2004 Ben Bernanke, then a Fed governor, boasted of a “great moderation.” Second, the system of liberalized capital markets born around this time — beginning with the eurodollar market — gave the dollar even more international utility than it had enjoyed under Bretton Woods. As the dominant currency not only in central bank international reserves but also in a rising share of international trade transactions, the dollar was more than ever the sun around which the other currencies of the world revolved. Third, the terrorist attacks of Sept. 11, 2001, strengthened rather than weakened the U.S.-centered international financial system. Direct hits on the World Trade Center, a short distance from the New York Stock Exchange, could only briefly disrupt the smooth operation of American financial markets. And when the U.S. government went after those who had financed al-Qaeda and other extremist groups, it discovered a hitherto underestimated superpower: the ability to impose financial sanctions on any country or entity that defied Washington. The increasing exertion of this superpower in response to a variety of different challenges to U.S. power — from the Russian annexation of Crimea to Swedish bank secrecy — revealed the full extent of American financial paramountcy. Excluding any actor from the dollar payment system was revealed as a more effective (and much cheaper) geopolitical lever than sending an aircraft carrier strike group. True, the U.S. could not restore Crimea to Ukraine. But it could inflict real pain on the Russian economy and the Russian political elite. Here was a powerful incentive to retain dollar dominance. Yet the core of this financial power was and remains the U.S. banking system. And two recent developments have exposed the weakness of this core. First, the financial crisis originated in the undercapitalization and poor management of the American banks and their European counterparts. Second, and less obvious, technological innovations began to expose the banks’ fundamental inefficiency. As the Princeton historian Harold James insightfully argued last month: The dollar’s long preeminence is being challenged, not so much by other currencies … as by new methods of speaking the same cross-border monetary language as the dollar. As the digital revolution accelerates, the national era in money is drawing to a close. … the demand for a monetary revolution is growing. That revolution will be driven by digital technologies that enable not only new forms of government-issued fiat currencies … but also private currencies generated in innovative ways, such as through distributed ledgers. … The world is quickly moving to money based on information rather than on the credibility of a particular government. In James’s neat framing, “Nixon’s closing of the gold window marked the end of a commodity-based monetary order, and the beginning a new world of fiat currencies.” Now, however, “we are moving toward another new monetary order, based on information.” Or are we? The past 18 months have been an exciting phase of the monetary revolution. The pandemic has sped up both innovation in decentralized finance and adoption by a wider range of investors and institutions of established cryptocurrencies such as Bitcoin and Ethereum. In recent months, however, I have been depressed to see a wave of attacks on cryptocurrency by the custodians of the established order. Among the standard-bearers of the backlash against crypto is Hyun Song Shin, with whom I once shared a staircase when we were students at the same Oxford college. In the latest BIS annual report, Shin denounces cryptocurrencies as “speculative assets rather than money … used to facilitate money laundering, ransomware attacks and other financial crimes.” Dismissing both Bitcoin and stablecoins, he argues that central banks must instead expedite the adoption and issuance of their own digital currencies, following China’s lead. Martin Wolf of the Financial Times sounded an even more combative note last month. Central banks and governments, he argued, “have to get a grip on the new Wild West of private money,” and the best way would be to introduce digital currencies of their own. “The state must not abandon its role in ensuring the safety and usability of money,” Wolf went on, echoing Shin: “Bitcoin in particular has few redeeming public interest attributes … In my view, such ‘currencies’ should be illegal.” These messages are being received and amplified in Washington. The President’s Working Group on Financial Markets, which is led by Treasury Secretary Janet Yellen, has expressed concerns about two stablecoins: Tether, which is under investigation by the Justice Department, and Facebook’s Diem, which was supposed to launch last month. Along with others such as Circle’s USDC, these stablecoins are backed by dollar assets. This has led some — for example, the former chairman of the Commodity Futures Trading Commission, Timothy Massad — to argue that stablecoins are like unstable money market funds. Another talking point (used, for example, by Fed Governor Lael Brainard) is that stablecoins are analogous to the notes issued by wildcat banks in the 19th-century U.S. This is very bad financial history, as George Selgin has pointed out. Perhaps the most startling illustration of this new mood was the speech given by Gary Gensler, chairman of the Securities and Exchange Commission, at the Aspen Strategy Forum on Aug. 3: Primarily, crypto assets provide digital, scarce vehicles for speculative investment. Thus, in that sense, one can say they are highly speculative stores of value. … We also haven’t seen crypto used much as a medium of exchange. To the extent that it is used as such, it’s often to skirt our laws with respect to anti-money laundering, sanctions, and tax collection. … Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West. The use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like. This affects our national security, too. As Kissinger quipped after a comparable litany of congressional complaints about abuses by the intelligence agencies: “Except for that, there is nothing wrong with my operation?” Gensler went on to argue that pretty much everything that moves in the world of crypto is almost certainly an unregistered security. Likewise, any platform where crypto tokens were traded or lent is subject to securities laws — and possibly also to commodities laws and banking laws. All he asked of Congress was “additional plenary authority to write rules for and attach guardrails to crypto trading and lending.” As if to answer that classic plea by a regulator for yet more power, the Biden administration seized the opportunity presented by its own bipartisan infrastructure bill to insert a provision that, in the name of increasing tax revenue, would treat many, if not all, crypto participants as “brokers,” potentially imposing 1099-issuing and IRS-reporting requirements on them. Many of these participants merely serve as nodes in a network, processing encrypted information, and do not even have access to the information required by the bill. A bipartisan group of senators — Republicans Pat Toomey and Cynthia Lummis, and Democrat Ron Wyden — rode to the rescue with a compromise amendment, which, while far from perfect, would have spared Bitcoin and Ethereum miners, validators, hardware makers and, most importantly, programmers themselves. Another bipartisan pairing, Senators Mark Warner and Rob Portman, proposed a competing amendment that would have created a carveout only for Bitcoin miners. Yellen and the White House backed the Warner amendment, as it offered a legislative basis for the universal digital financial surveillance they seek without the political battle that standalone legislation would likely require. While Bitcoin is the most widely held and most valuable cryptocurrency, it is Ethereum’s rapid, decentralized financial system based on smart contracts that worries Treasury. Overblown claims, such as Democratic Senator Elizabeth Warren’s warning that “shadowy super coders” would wreck the financial system, recall the alarmist reasoning used by the State Department in the 1990s when it attempted to restrict cryptography — an attempt overturned by the courts (in Bernstein v. United States), which deemed code to be protected free speech. The Warner amendment was an analogous attempt to choose “which foundational technologies are OK and which are not in crypto,” to quote Coinbase chief executive Brian Armstrong, a sentiment echoed by Tesla founder Elon Musk. In the end, the amendments fell by the wayside and the original language stands. The right response came from Senator Ted Cruz, who proposed striking all crypto language from the bill. As “no more than five” senators could answer “what the hell a cryptocurrency even is,” he said, “the barest exercise of prudence would say we shouldn’t regulate something we don’t yet understand, we should actually take the time to try to understand it.” I agree. And I also agree with the venture investor Adam Cochran (one of many “crypto bros” commenting on these developments) that “there is currently no greater way to risk the supremacy of the U.S. dollar, than by introducing anti-crypto legislation … The risk of cryptocurrency replacing the sovereignty of the U.S. dollar is *NOT* that people will start to denote everything in Bitcoin. It’s that this industry will set up shop elsewhere and it will use that currency.” No doubt Cochran is talking his own DeFi book. But I like this argument for historical reasons. As Harold James says, we are living through a monetary revolution as profound as the one that swept away the remains of the gold standard. But there is a difference. In the 1970s and 1980s, the attempts by governments to regulate the revolution were swept away. Nixon’s price and wage controls were an abject failure, just as the economist Milton Friedman (and Shultz) had foreseen. Under Reagan, it was deregulation that enabled American financial institutions to become the dominant players in international markets. The winners of my boyhood have become the bloated incumbents of my middle age. The innovative energy has passed to the crypto bros, leaving the established banks and their friends in Washington scrambling to make the barriers to competition even higher. If cryptocurrency is indeed the internet of money, then we are still at quite an early stage of its development. Restrictive regulation in the mid 1990s might have strangled in its infancy the commercialization of the world wide web. Restrictive regulation of crypto could turn out to be a very expensive mistake. I feel in my bones that trying to compete with China to build the best central bank digital currency is a mug’s game. The American way is to let innovation rip. Avichal Garg of Electric Capital is right in thinking that the best strategy to preserve the dominance of the dollar is precisely to encourage the international adoption of dollar-linked stablecoins, rather than to stamp them out. As the internet of money grows, the dollar is well placed to be the preferred global on- and off-ramp, connecting the nascent “metaverse” to the physical world where we still pay our taxes in fiat. If we have learned nothing else from the past half-century, it is surely that the best way to win a race with totalitarian rivals is not to copy them, but to out-innovate them. Make the wrong decision at this historic turning point, and we shall be interrupting a much bigger bonanza than Nixon did.
How Nixon And FDR Used "Crises" To Destroy The Dollar's Links To Gold https://mises.org/wire/how-nixon-and-fdr-used-crises-destroy-dollars-links-g... https://mises.org/wire/brief-history-gold-standard-focus-united-states https://mises.org/library/monetary-breakdown-west https://www.presidency.ucsb.edu/documents/address-the-nation-outlining-new-e... https://mises.org/wire/how-monetary-expansion-creates-income-and-wealth-ineq... https://wtfhappenedin1971.com/ https://mises.org/library/populist-case-gold-standard https://www.infoplease.com/primary-sources/government/presidential-speeches/... https://www.presidency.ucsb.edu/documents/executive-order-6102-requiring-gol... https://www.presidency.ucsb.edu/documents/proclamation-2039-bank-holiday-mar... https://mises.org/library/fed-and-ratchet-effect Since August 15, 1971, the US dollar has been completely severed from gold. President Richard Nixon suspended the most important component of the Bretton Woods system, which had been in effect since the end of World War II. Nixon announced that the US would no longer redeem dollars for gold for the last remaining entities that could: foreign governments. Gold redemption had been made illegal for everybody else, so this action finally ended any semblance of a gold standard for the US dollar. In Crisis and Leviathan, Robert Higgs showed how in the twentieth century the US government grew in size and scope primarily during crisis periods like wars or economic depressions. The powers gained during those periods were often advertised as “temporary,” but history shows that governments rarely relinquish powers. This “ratchet effect” applies to the way Nixon “temporarily” suspended gold redemption in 1971—the resulting regime of unbacked fiat dollars remains in effect today. What Was the Bretton Woods System? The Bretton Woods system was designed by the Allied nations, led by the United States, near the end of World War II as a postwar international monetary order. The US dollar would become the world’s reserve currency, which foreign governments could redeem for gold, even though US citizens could not. This prohibition was not new for US citizens, since Franklin D. Roosevelt outlawed private ownership of gold coins and bullion in 1933. To get foreign governments to join the agreement, the US promised to redeem dollars for gold at $35 per ounce, which limited the extent to which the supply of dollars could be expanded. International trade was slow to restart after World War II, which meant that the Bretton Woods system of gold exchange was not fully tested until the late 1950s.1 Yet, even by this time, US inflation meant that Japan and countries in Western Europe were holding a reserve currency that was falling in value, especially relative to the promised $35-per-ounce price of gold. The US could only use diplomatic pressure to slow the foreign governments’ requests for gold redemption. Even so, the US lost about 55 percent of its stock of gold from the early 1950s to the end of the Bretton Woods system in 1971. In a last-ditch effort to maintain the Bretton Woods system in 1968, the US tried to implement a “two-tier gold market” such that central banks around the world would participate in one market that would seek to keep the $35-per-ounce dollar-to-gold ratio, and would not buy or sell in the other tier: the private, free gold market. This, of course, quickly fell apart. By 1971, President Nixon could not contain the effects of the monetary inflation used to pay for the Vietnam War and Lyndon B. Johnson’s Great Society programs (including Nixon’s own expansions). Amid a host of desperate interventions such as new tariffs and wage and price controls, Nixon also “temporarily” suspended gold convertibility. He sought to “protect the position of the American dollar as a pillar of monetary stability around the world.” The dollar was completely severed from any commodity backing, making it a purely fiat money. The Federal Reserve could now inflate without any regard for redemption demands from private citizens, businesses, foreign governments, or foreign central banks. The Result: Inflation Anyone should have been able to predict the consequences of this event. A government with a ready buyer of debt in the form of an unrestrained central bank can spend much more, since the redistributive effects of inflation are less obvious than taxation. Gold redemption was a strict limiting factor for the Fed—now the only constraints are political and subjective, despite the appearance of technical expertise at the Fed. The threat of running out of gold has been replaced with the softer, lagged-consequence question: “To what extent will voters tolerate price increases and financial crises?” And even the negative political consequences may be exploited via Cantillon effects by creating and rewarding a chosen set of powerful, politically connected winners at the expense of a less powerful, propagandized population of losers. The consequences of the closure of the Bretton Woods system and the remaining façade of sound money it represented are well documented. Time series of almost any macroeconomic statistic show a “structural break,” i.e., an abrupt change in the trajectory of the series, around 1971 or shortly after. A website with the tongue-in-cheek URL WTFHappenedIn1971.com provides numerous such examples. Measures of monetary inflation, price increases, inequality, financial crises, saving rates, government spending, government size and scope, social/cultural indicators, incarceration rates, and even meat consumption and the number of lawyers all have inflection points in the early 1970s. Financial Crisis and Leviathan Besides the economic consequences of unhinged central banks, we should also understand the means by which the government was able to acquire so much control over money. Looking at episodes like Woodrow Wilson’s creation of the Federal Reserve, FDR’s confiscation of gold, and Nixon’s cancellation of Bretton Woods, as well as all of the other times the government chipped away at sound money, we notice a commonality. Crises, real or merely perceived, are exploited each time. Wilson rode the wave of fear of financial panics and the concern for farmers desperate for credit that had been stirred up by William Jennings Bryan and other progressives. Wilson emphasized the “urgent necessity that special provision be made also for facilitating the credits needed by the farmers of the country” and painted an apocalyptic picture of a world without his proposed banking system reforms: I need not stop to tell you how fundamental to the life of the Nation is the production of its food. Our thoughts may ordinarily be concentrated upon the cities and the hives of industry, upon the cries of the crowded market place and the clangor of the factory, but it is from the quiet interspaces of the open valleys and the free hillsides that we draw the sources of life and of prosperity, from the farm and the ranch, from the forest and the mine. Without these every street would be silent, every office deserted, every factory fallen into disrepair. FDR was the master of crisis exploitation. Executive Order 6102 begins this way: By virtue of the authority vested in me by Section 5 (b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled "An Act to provide relief in the existing national emergency in banking, and for other purposes," in which amendatory Act Congress declared that a serious emergency exists, I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations. Just one month earlier, FDR had mandated a bank holiday, suspending all withdrawals of gold from banks. His proclamation cited a “national emergency” due to “increasingly extensive speculative activity” and “heavy and unwarranted withdrawals of gold and currency from our banking institutions for the purpose of hoarding.” Almost forty years later, we see speculators being used as scapegoats again. In Nixon’s announcement, he accused “international money speculators” of profiting off monetary crises and “waging an all-out war on the American dollar” as if they were the ones causing the volatility in foreign exchange markets and the wholesale drainage of gold from the US, not the US government’s own irresponsible profligacy. In all of these episodes, the US presidents framed the power grab as a necessary and sometimes temporary response to a crisis. Financial panics, the threat of starvation, gold hoarders, and external speculative attackers were all used as a basis and cover for doing what governments have done for millennia: debasement, coin clipping, and money printing for the purpose of surreptitious extraction of wealth from a population. Only the most naïve could see the history of money and banking in the US as anything other than a ratchet of government growth, especially in the twentieth century. Even recent Fed actions follow the same pattern. Conclusion The Bretton Woods system was the last remaining vestige of the gold standard. As weak as it was, it limited the Fed’s ability to expand the supply of dollars due to the possibility of other governments redeeming their dollars for gold. When Nixon suspended the key component of the international agreement, he ushered in a new era of central bank monetary policy unhindered by any promise to redeem dollars for a certain weight of gold. The economic and cultural consequences of this event have been disastrous: even more inflation; exacerbated inequality via Cantillon effects; more government, both in size and scope; higher rates of time preference; severe financial crises and business cycles; and, of course, higher prices. The end of the Bretton Woods system followed the same pattern all other episodes in the demise of the gold standard followed. A crisis (real or just perceived) was exploited to announce a “temporary” measure or an “essential reform” of the existing system. The bigger picture shows a government that has finally gained 100 percent control over money and banking in the form of unbacked fiat money issued by an unrestrained central bank.
The End Of The Gold Standard: Fifty Years Of Monetary Insanity https://www.dlacalle.com/en/the-end-of-the-gold-standard-fifty-years-of-mone... This year marks the 50th anniversary since Nixon suspended the convertibility of the USD into Gold. This began the era of a global fiat money debt-fueled economy. Since then, crises are more frequent but also shorter and always “solved” by adding more debt and more money printing. The suspension of the gold standard was a catalyst to trigger massive global credit expansion and cement the position of the US dollar as the world’s reserve currency as it de-facto substituted gold as the reserve for the main central banks. Thus, since the breakdown of the gold standard, financial crises are more frequent but also shorter than before. The level of global debt has skyrocketed to more than 350% of GDP, and what is mistakenly called “the financial economy”, which is actually the credit-based economy, has multiplied. The gold standard supposed a limit to the monetary and fiscal voracity of governments and suspending it unleashed an unprecedented push to increase indebtedness and the perverse incentive of the states to pass on the current imbalances to future generations. By substituting gold for the US dollar as a global reserve, the United States has been able to borrow and increase money supply massively without triggering hyperinflation because it exports its monetary imbalances to the rest of the world. Other currencies follow the same monetary expansion without the global demand that the US dollar enjoys, so the rising imbalances always end up making those currencies weaker versus the greenback and the economies more dependent on the US dollar. This race to zero pursued by most central banks has also achieved that there is no real alternative to the US dollar as a reserve because the rest of the countries abandoned the monetary and fiscal orthodoxy at the same time, weakening their ability to be a world reserve alternative. In the 1960s, any currency from a leading country could compete with the dollar if its gold reserves were sufficient. Today, no one among the fiat currencies can compete with the dollar either in financial capacity or as a reserve. The example of the Yuan is paradigmatic. The Chinese economy is almost 17% of the world’s GDP and its currency is used in less than 4% of global transactions, according to the Bank Of International Settlements. With the suspension of the gold standard, Nixon cemented and guaranteed the financial and monetary hegemony of the United States for the long term while unleashing a global credit-fueled economy where financial risk disproportionately exceeds the real economy. The defenders of the suspension of the gold standard contend that financial crises are shorter and that the global economy has strengthened in the period. However, it is more than debatable to consider that massive debt expansion is the cause of progress. Non-productive debt has soared and the tax wedge on citizens is elevated, while the severity of financial crises has also increased, which are always “solved” by adding more debt and more risk-taking. A debt-fueled economy and massive money creation disproportionately benefit the first recipients of money and credit, which are government and the wealthy, creating a larger problem for middle-classes and the poor to access better standards of living when asset prices are artificially inflated but real wages rise slower than the price of essential expenses like housing, healthcare, and utilities, while taxes rise. A return to the gold standard may be unfeasible today given the size of the global monetary imbalance versus gold, which could create a giant financial crisis, but a Taylor-rule based system in monetary policy that limits central bank balance sheet expansion and a strict deficit and debt limit can be implemented if there is a political will.
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