Cryptocurrency: Celebrating 50+ years of Monetary Debasement and Debt That Politicians Put On Your Head

grarpamp grarpamp at
Wed Aug 18 03:05:00 PDT 2021

Nixon's Gold Treachery Made Me A Cynic,+oppress+the+honest,+and+open+the+door+to+every+species+of+fraud+and+injustice%22

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

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

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

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.

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