Commemoration Of A Canard

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“I have directed Secretary Connelly to suspend temporarily the convertibility of the dollar into gold.” — Richard M. Nixon, Aug. 15, 1971

In the spirit of commemoration, we cannot allow the 42nd anniversary of Nixon’s speech go without comment. Addressing the Nation to “outline a new economic policy,” he failed to disappoint: Wage and price controls were instituted, the automobile industry was browbeaten into reducing prices and a 10 percent tariff was assessed on all imports. All this occurred before Nixon announced his grandest exploit: the termination of U.S. commitments to exchange gold for dollars with foreign governments.

nixon

Previously, the Federal Reserve’s ability to issue new money was limited by the threat of depleting the government’s gold reserves. Printing too many dollars led foreign governments to start favoring gold over holding depreciating U.S. dollars. Nixon’s actions (which proved not to be temporary) ended the last vestige of a gold standard, erased all limits on the unchecked printing of money and effectively ended the world’s currency system (known as Bretton Woods) in place since World War II.

Whether Nixon was sincere in his belief that these actions would truly, to use his terms, “nurture and stimulate” the economy or if, perchance, he knew better and deceived the American people, we have no comment. We reserve our commentary not to purpose, but to effect.

And the effect was an unmitigated disaster. Nixon promised Americans that any talk of inflation with an unconstrained Federal Reserve was a “bugaboo” and that his actions would actually “stabilize the dollar.” (If you wish to listen to Nixon in his own words, the latter part of his speech can be viewed here.) According to him, the risk of Americans paying higher prices was extremely limited:

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

Despite these assurances, inflation became a hallmark of the 1970s as the unimpeded Federal Reserve zealously increased the money supply. The year 1973 experienced inflation of 9 percent, 1974 brought 12 percent, and the decade was closed out with a peak inflation rate of 14 percent in 1979. Since the date of Nixon’s speech, the dollar has lost 83 percent of its value. One dollar then is worth 17 cents today. What will it be worth tomorrow?

We cannot say with certainty, for while the creation of money causes inflation, the effect does not correspond fully in magnitude. Nor is it immediate. In fact, the lag between the expansion of the money supply and the onset of inflation could be years. If so, what expectations are reasonable based upon the Federal Reserve’s actions since 2008? The scary answer can be found in this chart depicting U.S. monetary growth.

[Editor's Note: If inflation's effects were immediate, people would catch on pretty quickly and they wouldn't stand for it. The average American is a little too dim on real economics to understand why creating new money from nothing is a horrible idea, and the political class is far too evil not to exploit this ignorance so they can rip off dollar holders. The dollar will continue on its accelerated slide to zero while gold will go up. So keep trading those Federal Reserve Notes for gold, but be sure to internationalize your gold holdings. Click here to learn more about how TDV can help.]

To tweak a famous quote by Winston Churchill, wiping away the last traces of the gold standard was not a new beginning for U.S. monetary policy. It was not even the end of the beginning. But it was, perhaps, the beginning of the end.

-Christopher P. Casey

Christopher P. Casey, CFA®, CPA is a Managing Director at WindRock Wealth Management (www.windrockwealth.com).  Using Austrian economic theory, Mr. Casey advises wealthy individuals on their investment portfolios to maximize their returns and minimize risk in today’s world of significant government intervention.  Mr. Casey can be reached at 312-650-9602 or at chris.casey@windrockwealth.com.

The Dollar Vigilante

(TDV) is a joint-venture publication founded by two respected free-market speakers and analysts in the financial sector, Jeff Berwick and Ed Bugos. Both Jeff and Ed consider themselves financial freedom fighters and have written extensively in the past about the ongoing and impending collapse of the US dollar based financial system. They joined forces to publish TDV, a publication and community for dollar crash survivors.

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  • KennyLLC

    It is well known that the dollar ceased to be backed by precious metals long ago, however the gold at Fort Knox was maintained in trade-rooms where trusting foreign countries hoarding currency , still backed by gold, was literally weighed out and forklifted from one room to the next, with the name of each respective country on a secured door. The process seemed absurd, but not any more than a dollar bill backed only by the faultering “full faith and credit of the U.S. gov’t”.
    U.S. politicians have secured that loss since the confiscation of all “Silver Certificates” from the possession of the American people, and our money has been worth less and less ever since. Likewise, international meddling along with terrorist insecurities have worked hand-in-hand with the diminishment of the U.S. dollar.

  • Don in Ohio

    “If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.”

    There is just no cure for stupid!

    • Robert Messmer

      Back then we really did have American-made products made by American companies right here in America. Tricky Dick was a politician not an economist and even if he knew he was wrong the go to policy of all politicians is to lie first, second and always. So stupid had nothing to do with it, other than the fact that the Democrats keep blaming Bush when they should blame Nixon.

  • hungry4food

    90 or so states in the union might make a Better Republic !!!!

    The need for more Representation of the Peoples voices may be better
    served and a Result of better diversity could be the success behind this sort
    of expansion of states .

    So its time to Shake up the
    Establishment !!!!!!!!!!!!

    I went to the website in Colorado and saw that my state of Oregon is in the
    works !!!!!

    This is going to be a Big Deal and make a Lot of Noise
    !!!!!!!!!!!!!!!!

    http://www.51ststate.org/tp50/page.asp?ID=316153

    I sure
    Like what This is talking about .

    “The
    concerns of rural Coloradans have been ignored for years,” William Garcia,
    chairman of the Weld County Commissioners, said in a statement. “The last
    session was the straw that broke the camel’s back for many people. They want
    change. They want to be heard.”

    Read
    more: http://freedomoutpost.com/2013/08/rural-coloradans-vote-to-secede-from-colorado-as-51st-state-north-colorado-cite-sweeping-gun-energy-laws/#ixzz2ck97ZPgo

  • Louis Lemieux

    Gold is a favorite investment of those who fear most of all other assets. What motivates most gold purchasers is their belief the fearful will grow in numbers.
    Value of the world’s gold stock stands right now at about 9 trillion dollars and that amount could buy all U.S. cropland producing $200 billion plus 16 ExxonMobils earning $40 billion annually and we would still have half a billion dollar left. Can you imagine an investor selecting all the gold over that?

  • Deerinwater

    The folly ~ is the illusion of “worth” . ~ As long as anything can be honored and the illusion maintain ~ a perception of worth will exist.

    It really does not matter what it is. I bought a silver dollar yesterday, a 1776/1976 , ` has the the Supreme Allied Commander (Eisenhower) on the face and the moon and the Liberty bell on the back. ~ I liked it, wanted it and so I bought it for 10 dollars. It’s now mine. I think that it’s 40% silver.

    It’s but a show for the appreciation for the man, I will carry it close.

    • Robert Messmer

      I always liked carrying a couple of “Silver” dollars in my pocket back in the day. Not because of the silver content, but just for the weight. It felt good, not like these light weight alloys that we have now.

      • Deerinwater

        That’s the way I feel as fell Robert, I honor, respect. revel things that I believe in and cherish. The value is “mine” ~ Flock everyone else.

        I happen to love and respect many things ~ and will defend and support them, ~ gold and diamonds are not on my list.