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

grarpamp grarpamp at
Wed Aug 18 03:10:56 PDT 2021

'A Day That Should Live In Infamy' - Peter Schiff: 50 Years Ago, Nixon
Slams Shut The "Gold Window"

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%

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.

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