1971: Nixon and The End of the “Gold Standard”
On August 15th, 1971, then President Richard Nixon announced that he was directing then Treasury Secretary John Connally to suspend, with a few minor exceptions, the convertibility of the dollar into gold by ordering the gold window to be closed. As the convertibility of dollars to gold had been closed to citizens in the 1913 Federal Reserve Act, this action meant the final nail in the coffin for the Bretton Systems at least in how it was initially structured as now foreign governments could no longer exchange their dollars for gold.
The magnitude of what this meant to the world should first be examined before we delve into what led to this event. Per the 1944 Bretton Woods agreement, all currencies were backed by the dollar as the reserve currency and the dollar was exchangeable for gold for countries, but not people. The foundation of gold still being at least in theory the core of the stability of the financial system, when Nixon made this decision he was effectively removing all precious metals backing of the dollar and creating an entirely fiat currency system. Fiat currency systems are systems established by the government that utilize some underlying currency that has no actual intrinsic or usable value, as gold and silver clearly both do.
The early 70’s was a period of rising inflation and therefore prices and a relatively high unemployment rate. Between 1950 and 1969, much of the rest of the world recovered from the devastation of WW2 and the U.S.’s share of economic output on the global scale fell. This created a balance of payments issue and this combined with debts from the Vietnam War, and monetary inflation as a result of the actions of the Federal Reserve in expanding the money supply had resulted in countries such as France and heavily criticizing the Bretton Woods system, calling it “America’s exorbitant privilege.” The system was viewed as unfair as by 1966 foreign central banks had $14 billion in USD currency reserves while the U.S only had $13.2 billion dollars in physical gold reserves with $10 billion backing domestic currency in circulation. In short, the Federal Reserve was cheating and creating currency that was not backed by gold to supply the U.S. Government with its never ending thirst for more money for its wars and social spending.
In February of 1965, Charles de Gaulle announced his intentions to exchange all reserve dollars for gold at the official rate. The dollar’s value remained elevated going into 1971 even with the Federal Reserve increasing it by roughly 10% and a series of events happened quickly that led to Nixon’s decision. First, in May 1971 West Germany removed itself from the Bretton Wood agreement as they refused to devalue the Deutsche Mark, then Switzerland redeemed $50 million in gold in July, followed by France removing $191 million in gold as well. The USD fell against all European currencies and Switzerland left the Bretton Woods system in August.
The abandonment of the backing of the USD by gold to foreign countries was effectively pinned on foreign governments and their foreign exchange problems as most U.S. citizens at the time, like today, were ignorant as to the way the international financial system was structured. In reality, what led to the event was the reckless spending of the U.S. Government and the enablement of it by the Bretton Woods system that the Federal Reserve and the U.S. Government were violating by not having the gold required to back the currency they created.
Analysis: As the patterns throughout history continue to show, when a central bank and its co-conspirators want to solve an economic problem, especially one they themselves created, the best possible solution is finding a scapegoat so they themselves are not blamed for the problem they created. The “solution” always seemed to involve less freedom and theft from the People and more power for the central banks and the government. Taking the U.S. off the Bretton Woods system, what was left of it, was done because this was what the central banks wanted — an unrestricted ability to create as much currency as they wanted whenever they wanted to assist their owners/stakeholders and NOT the People. Never mind, that the clear effect from new currency creation is the net devaluation of the existing currency in circulation and the reduction of its purchasing power (theft), the very thing a gold or silver standard is meant to prevent.
The outcome of this decision should be factored into the judgment of its merits as well. The U.S. has continued to decline economically in real terms in comparison to other countries across the globe, the wealth divide has grown dramatically, social problems have exploded, the debt has continued to grow exponentially into absurd levels, booms and busts are the norm, inflation is now rampant, and the Federal Reserve is effectively unable to move interest rates as they have trapped themselves.
The Federal Reserve continues to demand more power despite it being a complete and utter failure in every regard there is except for one: it has done very good things for the global elite and their interests. They are very happy with THEIR bank and THEIR system.
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