I first met Doug Casey two decades ago and have been a follower ever since. I even went so far as to visit his newly created community, “La Estancia de Cafayate,” in Argentina and considered moving there. Doug is an American writer, speculator, and the founder and chairman of Casey Research. He describes himself as an anarcho-capitalist influenced by the works of writer and philosopher Ayn Rand. He believes that all governments are corrupt and evil and that only basic governmental support is necessary for society. If that type of thinking turns you off and you want to leave the classroom right now, you would be making a mistake. Casey is a free-thinker. He has a brilliant intellect and a way of explaining complex situations in a manner understandable to the Common Man, like me. Be careful, you just may also become a fan. This particular article was penned by a protege, Nick Giambruno.
The Collapse of Fiat Money and Gold’s Resurgence
by Nick Giambruno
August 15, 1971.
It marked one of the most significant events in US history, yet most people know nothing about it…
It’s been over 50 years since that fateful day forever transformed America and the world.
Here’s what really happened.
It’s been rightly said that “he who holds the gold makes the rules.”
After World War 2, the US had the largest gold reserves in the world by far. Along with winning the war, this let the US reconstruct the global monetary system around the dollar.
The new system, created at the Bretton Woods Conference in 1944, tied the currencies of virtually every country in the world to the US dollar through a fixed exchange rate. It also tied the US dollar to gold at a fixed rate of $35 per ounce.
The dollar was said to be “as good as gold.”
The Bretton Woods system made the US dollar the world’s premier reserve currency. It forced other countries to store dollars for international trade or to exchange them with the US government for gold.
However, it was doomed to fail.
Runaway spending on warfare and welfare caused the US government to print more dollars than it could back with gold at the promised price.
By the late 1960s, the number of dollars circulating had drastically increased relative to the amount of gold backing them. This encouraged foreign countries to exchange their dollars for gold, draining the US gold supply at an alarming rate.
As a result, the US gold supply dropped by more than half, from 574 million troy ounces at the end of World War II to around 261 million troy ounces in 1971.
The situation pressured the US government to make a drastic decision.
It could do nothing and watch its gold holdings evaporate, which would mean losing enormous financial and geopolitical power. Or it could default on its promise to redeem the dollar for gold.
On Sunday night, August 15, 1971, President Nixon interrupted the scheduled TV programs and made a surprise announcement to the nation—and the world.
Nixon said he was temporarily suspending the dollar’s convertibility into gold.
The most obvious lie was Nixon’s claim that the suspension would only be “temporary.” It’s still in place today.
Another egregious lie was that his move was necessary to protect Americans from international speculators. Instead, money printing to finance out-of-control government spending was the real problem.
Lastly, Nixon said removing the link to gold would stabilize the dollar. However, even by the government’s own rigged inflation statistics, which understate reality, the US dollar has lost over 87% of its purchasing power since 1971.
The truth is that Nixon defaulted on the US government’s promise to redeem the dollar for gold at $35 an ounce. Since then, the dollar has been a pure fiat currency with no backing.
The Oxford English Dictionary defines fiat money as “inconvertible paper money made legal tender by a government decree.”
The Fiat Standard
August 15, 1971, was the official start of the fiat currency era.
The world went on a fiat currency standard for the first time.
It gave the US government an unfathomable amount of power.
Having the US dollar as the world’s premier reserve currency—without gold backing—allowed Washington to print fake money out of thin air and export it to the rest of the world for real goods and services. It’s a privileged racket no other country has.
Without gold to hold it in check, the Federal Reserve—the central bank of the US—could print as many dollars as it wanted. And that’s exactly what happened.
1971 was an enormous change in money and finance.
Instead of gold, the fiat US dollar and Treasuries (US government bonds) became the base layer assets—the bedrock—of the international financial system.
Before the adoption of a fiat currency standard, gold had been mankind’s most enduring form of money—for over 5,000 years—because of unique characteristics that made it best suited to store and exchange value.
Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities.
In other words, gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to debasement.
Gold is indestructible, and its stockpiles have built up over thousands of years. That’s a big reason why the growth of new gold supply—typically 1-2% per year—is insignificant.
In other words, nobody can arbitrarily inflate the supply.
That makes gold an excellent store of value and gives the yellow metal its superior monetary properties.
People in every country of the world value gold. Its worth doesn’t depend on any government or any counterparty at all. Gold has always been an inherently international and politically neutral asset. This is why different civilizations around the world have used gold as money for millennia.
Yet, most people don’t understand this.
They might say the paper dollars in their wallets and the digital dollars in their bank accounts are money, not gold. But that’s only been the case since 1971, a drop in the bucket by historical terms.
However, that’s all about to change—and soon.
That’s because the fiat system is self-destructing at an alarming rate.
It’s been over 50 years since Nixon ushered in the fiat currency system by severing the dollar’s last link to gold.
Like a carton of spoiled milk left out on the kitchen counter, the fiat currency system is long past the end of its shelf-life.
I believe we’re on the cusp of the most significant changes in money and finance in world history.
In short:
1) The fiat currency system centered on the US dollar is on its way out.
2) Gold will return to the center of international finance.
I believe this is the logical outcome once you put the pieces together to see the Big Picture.
Fed Chair Powell’s recent dramatic pivot to monetary easing is compounding the situation.
That means the Fed has given up on bringing inflation down… even though it remains well above their target.
It’s an incredible failure and will have ENORMOUS investment implications for the US dollar and gold.
If the gold price is already hitting record highs, imagine what will happen when the Fed flips back to easing with even more currency debasement than the previous rounds of stimulus.
I think the gold price could skyrocket.
Thank you, Nick Giambruno, of Doug Casey’s International Man Communique.
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