Wikinvest Wire

Nixon ends gold convertibility

Wednesday, March 05, 2008

This blast from the past, courtesy of Thoughts on Freedom, makes you appreciate what a great 37-year run it has been.



From Wikipedia:
By the early 1970s, as the Vietnam War accelerated inflation, the United States as a whole began running a trade deficit (for the first time in the twentieth century). The crucial turning point was 1970, which saw U.S. gold coverage deteriorate from 55% to 22%. This, in the view of neoclassical economists, represented the point where holders of the dollar had lost faith in the ability of the U.S. to cut budget and trade deficits.

In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on August 15, 1971, Nixon unilaterally imposed 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window," making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department, and was soon dubbed the "Nixon Shock".
That sounds funny - the United States began running a trade deficit for the first time in the twentieth century.

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10 comments:

Nick said...

Wow... awesome find. The beginning of the end for the US dollar. Part of me boggles at how uneducated and gullible people must have been then for Nixon to be able to make the claim that the move was done to ensure the continued stability of the US dollar, and not be laughed out of office. Then again, Hillary hasn't been laughed out of the primary for proposing a government-imposed hold on foreclosures to help "fix" the housing "crisis", so maybe we haven't progressed all that much.

BSR said...

A question for experts: Were there other countries in the world at that time that had gold convertibility?

How about now? Is there a gold backed currency still?

Nick said...

As far as I can tell from google searches (and I'm by no means an expert, so feel free to correct), no countries are currently on the gold standard, or any non-fiat currency. I was looking to see if there were going to be any good safe-haven countries to perhaps migrate to when the US begins it's inevitable fiat currency collapse, but sadly every other country has apparently also discovered the joy of unlimited government spending.

If anyone has opinions/insight for which countries (preferably first-world) are best positioned to weather the US currency collapse, please post. It's going to be bad-times to be in America paying taxes in US dollars when the country gets to 20% inflation or more...

tj & the bear said...

Correct me if I'm wrong, but doesn't the UN/IMF charter specifically prohibit gold-backed currencies?

troy said...

And to think that was once considered "conservative".

donna said...

I was only 12 then or I would have been screaming at him.

If only we had blogs back then!

Thanks for ruining our economy, Nixon, you jerk.

staghounds said...

I WAS 12 back then, and I WAS screaming at him. Even at that age, I knew this was a mass of lies.

Anonymous said...

Nixon was forced into that move. If he had not closed the window the US would have been drained of every ton of gold it had left due to the deficit spending. We had over 21,000 tons of gold in 1948 and were down to about 8,000 in 1971, after deficit spending had accelerated to pay for the war.

Yes, Nixon did it, but we were already on that course.

Esentially the United States defaulted on it's obligations that day, under the Bretton Woods agreement from 1944. The Bretton Woods agreement was part of the US bankruptcy re-organization after the Great Depression. Now that we are on (the world is on) a completely fiat/debt based currenct for 37 years, we are close to defaulting again. It is a certainty, like every fiat fractional reserve system throughout history.

Anonymous said...

The greenback was the only remaining gold-backed currency when Nixon leapt into open space. Like Wilie-Coyote, the US dollar has defied gravity for a short (37 years) time, but we all know how this jump will end. Europe has created a mini-Breton Woods currency, the Euro, but this too is just fiat-money flying on a wing and a prayer. The wild exchange rate swings generated by Nixon's move, and the subsequent perverse 'globalization' of financial markets is equivalent to having many loose cannon rolling on deck. No wonder the ship is listing badly...

John said...

See http://sites.google.com/site/tinfoilhatorg/Home/energy-backed-currency

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