Sunday, August 14, 2011
40 Years Ago: The US abandons the last links to the gold standard
Nixon has been roundly criticized by gold bugs for the move but in reality he had little choice. Like Obama he was left holding the bag by his predecessor who spent the country into bankruptcy. LBJ had needed huge amounts of money to fund the two wars he started and ultimately lost (Vietnam and the war on poverty). And the Federal Reserve had then as now printed money, although then they were in fact violating treaty obligations by creating more currency then could be redeemed in gold.
Oddly, like Obama, Nixon also did almost nothing to reverse the disastrous fiscal policies he inherited. Point in fact he too exacerbated the situation with continued war and social spending coupled with his appointment of Arthur Burns as FED Chairman. Still he had no choice but to de-link the dollar or massively devalue it. The rest of the world had figured out our game and their central bankers were rushing to cash in their paper money for the real thing at an alarming rate. By the summer of '71 we quite literally had a run on the bank at the FED as gold was poring out of the FED's vaults and being shipped overseas. And so on August 15th 1971 Richard Nixon closed the gold window and for the second time in less than a half century the US defaulted on its obligations.
And the rest as they say is history.
In observation of this momentous anniversary I will be posting a number of articles and essays related to the gold standard from differing perspectives. No endorsement of any views in them should be presumed unless specifically stated.