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From the author of: The Survival Guide For The One Percent

Novel title image

From the Silk Road to the Central Bank, Chapter Three.


leaving the gold standard

Richard M. Nixon

Richard M. Nixon

The Nixon Shock was a series of economic measures undertaken by United States President Richard Nixon in 1971.

The most significant was the unilateral cancellation of the direct convertibility of the United States Dollar to gold.

From Wikipedia:

I possessed significant antagonism towards Nixon, when he was in office. So it was with some real surprise that I found myself agreeing with the man, when it comes to his handling of the unmitigated bullying the international financial community was pursuing against the United States.

The antagonism displayed towards Nixon's decisions, from within the United States, was intense. I wasn't quite old enough to have had the education opportunities, nor any access to information to learn why he was making the decisions regarding specie currency valuations.

He was against the wall, and he came out punching. I have to say now, I agree with what he did. The only thing I can say now, regarding his plan, is that I wish he was allowed to finish it.

These events, seldom remembered by the present generation, set in motion enormous changes to the world's financial system. The 2008 crash could not likely have occurred, and Nixon may have inadvertently been the very first player to have set it in motion. If, however, he had completed his plan, the 2008 crash would have likely not occurred.

I write about this, because it demonstrates my point for the need to stop the influence of foreign central banks, upon the U.S., and, consequently, on the U.S. citizen.

I have pulled portions of several articles written about the motivations, and the need to end the convertibility of US Dollars to Gold.

Before I include those, you should recall how the U.S. dollar has gained a value similar to that of gold. Every country wants dollars, because they are the preferred stable currency. The banking industry likes this, so they consider the dollar to be a "Reserve Currency". There are consequences, and unfortunately, especially within the United States.

Here is some information from Wikipedia:

A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The reserve currency is commonly used in international transactions and often considered a hard currency or safe-haven currency. People who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than people in other nations because they don't need to exchange their currency to do so.

By the end of the 20th century, the United States dollar was considered the world's most dominant reserve currency, and the world's need for dollars has allowed the United States government as well as Americans to borrow at lower costs, granting them an advantage in excess of $100 billion per year. However, the U.S. dollar's status as a reserve currency, by increasing in value, hurts U.S. exporters.

More from Wikipedia, about the dollar, but this page also has a link to Reserve Currency that is worth reading. The banking industry enjoys the dollar status as a reserve currency, but the world wanting all they can get, means that the U.S. citizen suffers from the financial people worrying about to many dollars in existence. The United States competes for access to its own currency, and we do not control the rate of production (printing) of our own dollar.

Note that the first is written, from the inside, and presented by the Federal Reserve Bank of Atlanta. As you read it, please remember all the help we provided Japan, Germany, and numerous other nations, following WWII, so that they could get back on their feet. Getting bitten by that charity would not have been a reasonable outcome.

If I have ever read anything that supports my point that money, and in this case, the U.S. Dollar, is a commodity manipulated to whatever degree deemed necessary for the times, these would qualify.

We created Dollars to a level greater than that which we possessed in gold, during those days of assisting other nations, and when we were still on the gold standard. I use the word created, because we did little more than print them. We ignored that we didn't have the gold to back them up, but we also knew that those simple pieces of paper were the most high valued commodity on the planet next to gold bullion. The peoples, and employees of those governments, would exchange them for goods, services, and local labor, just as though they were coin made of actual gold metal.

Currencies are now similarly produced, without regard to any tangible value. The quantity of U.S. Dollars sent out into the world is under even less control.

I can no longer perceive any reasons to preserve our method of valuing the U.S. Dollar, nor the deliberate limiting of the supply of Dollars, within the boundaries of the United States. Our country's needs are profound. We have been forced into austerity measures, except, of course, for those costs related to two wars, and our new one against ISIS..

Below the first article are three assessments of the reasons, and outcome from the view of many years later, and from the present.

I provide the links to the full versions of each article.

  • August 1971, By:
    Sandra Kollen Ghizoni, Federal Reserve Bank of Atlanta

    Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls

    Initially, the Bretton Woods system operated as planned. Japan and Europe were still rebuilding their postwar economies and demand for US goods and services, and Dollars, was high. Since the United States held about three-quarters of the world's official gold reserves, the system seemed secure.

    In the 1960s, European and Japanese exports became more competitive with US exports. The US share of world output decreased and so did the need for Dollars, making converting those Dollars to gold more desirable. The deteriorating US balance of payments, combined with military spending and foreign aid, resulted in a large supply of Dollars around the world. Meanwhile, the gold supply had increased only marginally. Eventually, there were more foreign-held Dollars than the United States had gold. The country was vulnerable to a run on gold and there was a loss of confidence in the US government's ability to meet its obligations, thereby threatening both the Dollar's position as reserve currency and the overall Bretton Woods system.

    Many efforts were made to adjust the US balance of payments and to uphold the Bretton Woods system, both domestically and internationally. These were meant to be "quick fixes" until the balance of payments could readjust, but they proved to be postponing the inevitable.

    In March 1961, the US Treasury's Exchange Stabilization Fund (ESF), with the Federal Reserve Bank of New York acting as its agent, began to intervene in the foreign exchange market for the first time since World War II. The ESF buys and sells foreign exchange currency to stabilize conditions in the exchange rate market. While the interventions were successful for a time, the Treasury's lack of resources limited its ability to mount broad Dollar defense.

    From 1962 until the closing of the US gold window in August 1971, the Federal Reserve relied on "currency swaps" as its key mechanism for temporarily defending the US gold stock. The Federal Reserve structured the reciprocal currency arrangements, or swap lines, by providing foreign central banks cover for unwanted Dollar reserves, limiting the conversion of Dollars to gold.

I am providing quotes of portions of a few articles presenting the opinions of economists, about the Nixon Shock, and I provide links to the full versions.

  • By: Gerald Epstein

    A First Ever Default? Closing the Gold Window, Forty Years On

    The move by Nixon was designed to restore US competitiveness that had been harmed by the reconstruction of Europe and Japan in the decades following the Second World War, and to improve his re-election chances by increasing employment, profits and exports. By the cunning of history, though, while the Nixon "default" was designed to restart the American manufacturing machine, instead it set into motion the forces that would lead to the dominance of finance, the hollowing out of American manufacturing, the massive destruction of decent employment - and eventually to the Crash of 2008.

  • By: David Frum

    What Really Went Wrong with the Nixon Shock? (Updated)

    The United States adhered to the classic gold standard for a surprisingly short time: from 1873 until 1934 with a brief time-out during World War I. During those 60-minus years, any bank could present Dollars to the U.S. Treasury and receive gold in exchange at a fixed price: $20.67 to the ounce.

    The commitment was in practice a lot less rock solid than it seemed.

    The American monetary system did not work very well in the 19th and 20th centuries, and repeatedly the U.S. crashed into crises that left international bankers doubting that the federal government could or would honor its obligations.

    And for most Americans, the gold standard of 1873-1934 delivered pretty miserable results, including two terrible depressions (1893-1896 and 1929-1940) plus the long grinding squeeze of the deflation of 1873-1893. I don't think it's entirely a coincidence that the years of the U.S. gold standard were years of violent labor strife, radical ideology, attacks on the political system by a series of protest parties, and two presidential assassinations.

    The U.S. quit the gold standard in 1934. While the Dollar continued in theory to be defined as worth a certain amount of gold (1/35 of an ounce), in practice, a Dollar was just a piece of paper. If you took your Dollar to the U.S. Treasury and asked to exchange it for gold, they'd call the cops: it was made illegal for private citizens to own gold.

  • By: Lewis E. Lehrman, The Wall Street Journal

    The Nixon Shock Heard 'Round the World

    He and Connally were determined to present a comprehensive package of dramatic measures to deal with the nation's huge balance of payments deficit, its anemic economic growth, and inflation.

    Dramatic indeed: They decided to break up the postwar Bretton Woods monetary system, to devalue the Dollar, to raise tariffs, and to impose the first peacetime wage and price controls in American history. And they were going to do it on the weekend-heralding this astonishing news with a Nixon speech before the markets opened on Monday.

    The most dramatic Connally initiative was to "close the gold window," whereby foreign nations had been able to exchange U.S. Dollars for U.S. gold - an exchange guaranteed under the monetary system set up under American leadership at Bretton Woods, N.H., in July 1944. Recently the markets had panicked. Great Britain had tried to redeem $3 billion for American gold. So large were the official Dollar debts in the hands of foreign authorities that America's gold stock would be insufficient to meet the swelling official demand for American gold at the convertibility price of $35 per ounce.

The three examples above become more classically conservative, from top to bottom. Now from one regarded as "Liberal".

The following is an example of the classic high powered economist that expresses his opinion about the impacts created by Nixon's decisions. Although the opinion below notes how irresponsibility of some bankers is possible, and historic, it stays away from the aspects I think are far too alarming for him to provide the light of day.

Please note the subtle inclusions regarding the value of a U.S. Dollar, without a tie in value to gold.

In 1996, liberal economist Paul Krugman (Nobel Prize in Economic Sciences, 2008) summarized the post-Nixon Shock era as follows (unedited):

The current world monetary system assigns no special role to gold; indeed, the Federal Reserve is not obliged to tie the Dollar to anything. It can print as much or as little money as it deems appropriate. There are powerful advantages to such an unconstrained system. Above all, the Fed is free to respond to actual or threatened recessions by pumping in money. To take only one example, that flexibility is the reason the stock market crash of 1987 - which started out every bit as frightening as that of 1929 - did not cause a slump in the real economy.

While a freely floating national money has advantages, however, it also has risks. For one thing, it can create uncertainties for international traders and investors. Over the past five years, the Dollar has been worth as much as 120 yen and as little as 80. The costs of this volatility are hard to measure (partly because sophisticated financial markets allow businesses to hedge much of that risk), but they must be significant. Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible - and, in some countries, they have been quick to take the opportunity. [Credit: Krugman, Paul. The Gold Bug Variations; 22 November 1996.]

There are phrases, and words key to the point left unsaid. The word hedge is profoundly important. It means they cover their asses, by allowing their interpretations of the value of the Dollar to be manipulated.

The phrase included in the following sentence is also profoundly important: Furthermore, a system that leaves monetary managers free to do good also leaves them free to be irresponsible - and, in some countries, they have been quick to take the opportunity. It means there are banking institutions allowing, if not directly engaging, in the manipulation of the value of the Dollar.

You're likely thinking something similar to: "No kidding. You're only now becoming aware of their dishonesty?" After 2008, we all became fully aware that our suspicions regarding their dishonesty were accurate, and we even naively underestimated their degree of dishonesty. Yes, I underestimated how dishonest they could be, but that isn't my point.

The Clinton administration, and his Financial Services Modernization Act, produced these unregulated creeps, and they routinely manipulate the value of the Dollar to their advantage. They do it constantly, and only to their advantage. We, as the cannon fodder for these creeps, continue to assume that they exist in a world, within which we have no ability to manipulate the Dollar, and the overall economy, to our advantage. I think we do, can, and should.

How about we start out with examining one of their own methods of manipulation?

Inflation is one of the terms they use to either excite, or scare everyone, as well as a term they use with greater attempts to make everyone afraid: Deflation. Why are those both assets, and liabilities, but cannon shells, as well?

2008 injured a very high percentage of us, with the losses we incurred on our homes. Previously, inflation was described as an asset, and they got everyone to jump in. Homes were, and hopefully will return in value, to being the average U.S citizen's greatest single asset.

The Dow Jones, during much of my youth, hovered around 1000, and dividends were the primary attraction for investors. The promise of inflation drove brokers into a new round of promises to their clients. The market's attraction changed, from dividends to capital gains income. Stocks with consistent performances, and dividends greater that inflation, and the prime rate were suddenly described as old people stocks.

The 1980's saw astronomical increases in share prices, and the acceptable price/earnings ratio went from 10, to 20, to often even 60. Then even that caliper for decision making flew out the window, and shares sold, as most buyers hoped, from one fool to an even bigger fool. The Dow moved higher, but most shares selling with little regard to price to earnings ratios were not components of the Dow. Stock brokers put their people in Mutual Funds, or other instruments containing those stocks. In 1987, we saw the totally predictable outcome, or as wall street terms it, a correction occurred. (Have you noticed stock brokers had to change their names, after 2008? They now title their job, as well as the businesses, Wealth Management, or Estate Planning.)

The greatest impediment we have to implementing an organized effort to extricate ourselves from the influence, and dominance, or them, and more importantly European Central Banking, is the:

Some bitterly painful examples of this can be shown during the days, just prior to the 2008 crash, and more accurately a couple, or three years before, when Day Traders were replete among those moving, and manipulating stocks on all exchanges. You could also see it in the mortgage broker industry. Those selling real estate loved it all, until, the also inevitable crash of available "no doc loan" credit lines.

Other historically significant examples include what occurred around 1905, and produced "The Panic of 1907".

The panic of 1907 was more than a simple Wall Street crash; more than a dramatic tightening of credit, and more than an event that precipitated a near depression. It had been another clear case of the Inevitable Human Factor. It was an example of the Inevitable Crooks. It gave us the system we have today, and put the European banks back in charge.

You may click on the images below, for more on how it happened.

panic of 1907

Wall street, and the Panic of 1907

Richard M. Nixon

The Panic of 1907 was a financial crisis that almost crippled the United States economy. Major New York banks were on the verge of bankruptcy and there was no mechanism to rescue them, until Morgan stepped in to help resolve the crisis. Click the button below, if you wish to read more from Wikipedia.

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