President Richard Nixon’s abandonment of dollar convertibility for gold in August 1971 was probably the least understood and most important thing he did while in office. From Bill Bonner at acting-man.com:
Hell With Air-Conditioning
LAS VEGAS – It was 113 degrees outside when we rolled through Baker, California, a few days ago. We drove along in comfort, but our sympathies turned to the poor pilgrims who made their way to California in covered wagons. How they must have suffered!
Our suffering didn’t begin until we checked into the Planet Hollywood Hotel in Las Vegas. What a horrible place. You stand in line for half an hour to get your room key – even after you’ve checked in online. Then if you leave your key in your room, you stand in line for another half an hour to get another one.
The music blares; the lights flash; the slot machines beckon. The décor is garish and ugly. The food is hit or miss. The staff are helpful only insofar as they can tell you which line to stand in. It is like Hell with air-conditioning. But we didn’t come to complain; we came to learn.
“Go back and read President Nixon’s speech from 1971,” urged old friend Adrian Day, whom we met while standing in line in the hotel lobby (the nice thing about the hotel is that you have plenty of time to talk to friends, if you happen to be standing in the same line at the same time).
“But it’s taken us into such a strange world. No one knows what to make of it,” he continued. What to make of it is our subject for today – and for most other days. So, we continue our exploratory surgery on the modern money system. But the body is so alien, so Frankenstein-like, it is hard to make out what is going on.
Paying to Lend
The strangeness of today’s financial world is illustrated most emphatically by negative interest rates. As colleague Chris Lowe reported this week to members of our global research service Inner Circle, $12 trillion of sovereign debt now trades on subzero yields.
Distribution of negative yielding sovereign bonds by country – Japan has the by far biggest pile of those
ALL Swiss government debt now carries on a negative yield. And Japanese government bonds trade on negative yields out a half-century. Meanwhile, the German government just issued its first bond with a negative yield.
It’s the first time ever that investors have accepted a negative yield on the first issue of a bond. Typically, yields fall into negative territory as bonds get traded back and forth… and prices (which move in the opposite direction to yields) get bid up.
To continue reading: The Day They Killed the Dollar
