Tag Archives: Gold Window

Paul Volcker: The Man Who Vanquished Gold, by Joseph T. Salerno

Paul Volker helped free the US dollar from its last tether to gold. A few years later, he had to tame the inflation his move had helped ignite. From Joseph T. Salerno at mises.org:

The flood of obituaries that noted the passing of Paul Volcker (1927–2019) last week have almost all lauded his achievement as Fed chair (1979–1987) in reining in the double-digit inflation that ravaged the US economy during the 1970s.

Volcker was referred to as the “former Fed chairman who fought inflation” (here);  “inflation tamer” and “a full-fledged inflation warrior” (here); and the “Fed chairman who waged war on inflation” and led “the Federal Reserve’s brute-force campaign to subdue inflation” (here).  Mr. Volcker certainly deserves credit for curbing the Great Inflation of the 1970s.  However, he also merits a lion’s share of the blame for unleashing the Great Inflation on the US and the world economy in the first place.  For it was Mr. Volcker who masterminded the program that President Nixon announced on August 15, 1971, which  unilaterally suspended gold convertibility of US dollars held by foreign governments and central banks, imposed a fascist wage-price freeze on the US economy, and slapped a 10 percent surcharge on foreign imports.1

Tragically, by severing the last link between the dollar and gold, Volcker’s program scuttled the last chance of restoring a genuine gold standard.

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Nixon Shock, the Reserve Currency Curse, and a Pending Dollar Crisis, by Mish Shedlock

When Nixon closed the gold window in 1971, he opened a Pandora’s box of economic evils. From Mish Shedlock at moneymaven.io:

Many problems today including deficit spending, trade deficits, and income inequality have their roots in 1971.

Nixon Shock

A reader asks “What Forced Nixon to Close the Gold Window in 1971?”

The answer is called “Nixon Shock“.

Nixon wanted to fight the war in Vietnam, not raise taxes, and not hike interest rates to finance it.

Arthur Burns, not Volcker was at the Fed.

American economist Barry Eichengreen summarized: “It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one”.

Vietnam War and the Dollar Exodus Beginning

The dollar exodus had its beginnings way back in February 1965 when President Charles de Gaulle announced his intention to exchange its U.S. dollar reserves for gold at the official exchange rate of $35 per ounce.

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Trade Tariffs Will Not Make America Great Again, by Bill Bonner

Here’s Bill Bonner’s take on the recently announced tariffs. From Bonner at bonnerandpartners.com:

GUALFIN, ARGENTINA – The big news last week was Trump’s hasty decision to impose tariffs on aluminum and steel.

We were happy to see it.

We were looking for an example – undeniable, indisputable, and in-your-face, jackass – to illustrate how government actually works.

“The Donald” has just provided it.

Undisguised Dumbkins

It can be hard work digging in the rocky, ungrateful soil of public policy… scraping off the honey-dirt of wishful thinking, delusion, and fraud… to uncover the corruption and stupidity of what lies beneath them.

So we would like to thank Secretary of Commerce Wilbur Ross and the president’s trade advisor, Peter Navarro, for their contributions.

They have put the claptrap right on the surface. Rarely do we get to see public officials who are such undisguised dumbkins with so little guile… and such unvarnished crackpot theories.

They have made it easy for us. Thanks again.

Here in Argentina, trade barriers have been a fact of life for a long time. A couple of years ago, we were unable to get tires for our tractor.

Argentina’s tire-making cronies were protected by tariffs. If you wanted to buy a tire, you had to pay for the locally made, inferior tire.

Unless, of course, they didn’t make the model you needed. Then, you were just out of luck.

Same thing for electronics.

Apparently, ex-president Cristina Fernández de Kirchner had some business buddies down in the south who made electronic components.

So imports of laptops, computers, smartphones, and other paraphernalia were restricted, ostensibly to give the nascent native manufacturers a chance to grow up and compete with Apple, Samsung, and Panasonic.

When you came into the country, you had to show exactly what iPhones, iPads, and portable computers you were carrying. Woe to you if you didn’t still have them when you left.

Diminishing Wealth

But that’s the sort of thing you expect in a “sh*thole” country – the naked use of government to transfer money from the ordinary person to the well-connected elite.

A modern, civilized country is usually more sophisticated about it.

Its economists realize that trade barriers lower output, ultimately diminishing the wealth available to a predatory elite.

Better to allow free trade to fatten the pig, they reason, before carving the ham.

In the event before us, Mr. Ross brought a group of steel and aluminum industry executives to the White House at 11 a.m. on Thursday.

These cronies bitched and moaned, no doubt, about how the Canadians were playing unfair… or how the Mexicans had lower costs… or how the Europeans made better metals.

Donald J. Trump, a fighter, grabbed a microphone. The sun had scarcely reached its zenith before he had set off a trade war, claiming it was easy to win one. Then he added, comically, on Twitter:

We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!

Never addressed was the real issue: How come Americans buy more things from overseas than they sell?

If he had bothered to look more carefully, Trump would have noticed that it has nothing to do with trade deals or the lack of trade barriers.

To continue reading: Trade Tariffs Will Not Make America Great Again

A Date Which Will Live in Infamy, by Antonius Aquinas

The world changed dramatically for the worse when President Nixon closed the gold window—the ability of foreign governments to redeem their US dollars for gold. From Antonius Aquinas at acting-man-com:

President Nixon’s Decision to Abandon the Gold Standard

Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.” Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.

Nixon points out where numerous evil speculators were suspected to be hiding. No, wait… actually, Nixon points to the black hole that has swallowed countless lives and a great deal of treasure under his and his predecessor’s watch – ultimately leading to the US default on the Bretton Woods gold exchange standard. Photo credit: Richard Nixon Presidential Library

On August 15, 1971 in a televised address to the nation outlining a new economic policy entitled, “The Challenge of Peace,” Nixon instructed the Treasury Department “to take the action necessary to defend the dollar against speculators.”*

Nixon continued:

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interests of monetary stability and in the best interests of the United States.”**

Of course, any objective student of history knows that this was a lie and that it was not “speculators” which were causing monetary instability, but the U.S.’s own crazed inflationary policy which attempted to fund its imperialistic endeavor in Vietnam while expanding the welfare state at home.

This resulted in the Treasury losing an alarmingly amount of gold reserves to other central banks who rightly sought real value in exchange for depreciated American greenbacks.

The televised announcement of the gold default, with Nixon telling blatant lies to defend the decision, in addition to lying about its “temporary” status while revealing his economic illiteracy at the same time, all in the space of a mere four minutes.

In essence, Nixon’s decision ended gold redemption and placed the U.S. and the rest of the world on a purely fiat paper standard for the first time in recorded history. By doing so, the U.S., in effect, became a deadbeat nation which no longer honored its obligations and was set on the road to its current banana republic status.

Instead of impeachment proceedings and his ultimate resignation for the juvenile break in at the headquarters of the nation’s other ruling crime syndicate, Nixon should have been imprisoned for this deliberate and destructive act which has led, in large measure, to the nation’s crushing and insurmountable debt burden, reoccurring booms and busts, and now economic stagnation.

To continue reading: A Date Which Will Live in Infamy

 

What Nixon Wrought, from The Burning Platform

From the administrator at theburningplatform.com:

I’m sure glad Nixon only “temporarily” suspended the convertibility of the dollar into gold. When a politician or banker uses the word temporarily to describe some un-Constitutional act they are taking to protect you, be sure it’s permanent and you are getting screwed on behalf of the establishment. Nixon closing the gold window in 1971 allowed him to continue the welfare/warfare state.

Bernanke temporarily reduced interest rates to 0% eight years ago to avert some sort of financial disaster (Wall Street banks reaping the consequences of their actions and going bankrupt). Rates are still essentially 0%, supposedly 7 years into an economic recovery. Obama and his minions temporarily were going to run huge budget deficits to jump start our economy with Keynesian magic. It’s seven years later and the budget deficit will exceed $600 billion this year and on path to exceed $1 trillion in the next few years. Temporarily is code for bend over citizens.

The de-linking of the dollar to gold allowed politicians to promise free shit to their constituents in order to buy votes, with no immediate consequences for their re-election campaigns. Politicians gone wild led to the national debt going from $370 billion in 1971 to $19.1 trillion today. It allowed these treasonous bastards to promise $200 trillion of goodies to the people, which they won’t honor.

It allowed Wall Street to peddle credit cards, auto loans, mortgages, and home equity loans to the unwashed masses through the greatest propaganda program in history. They’ve lured generations of math challenged Americans into the debt slavery of low monthly payments for eternity. We now sit with $60 trillion of total debt and a faltering economy which will never generate enough wealth to pay off the debt.

We’ve passed the point of no return. The economic collapse is a forgone conclusion. It’s just a matter of how much longer the sociopathic establishment can keep the charade going. There are cracks appearing everywhere. Time is running out. Thank Trick Dick for his temporary suspension of dollar convertibility.

http://www.theburningplatform.com/2016/03/12/what-nixon-wrought/

The American Dream – Moonshine and Scam, by Bill Bonner

Ever increasing taxation, regulation, and fiat money have consequences. The American economy has been deteriorating for several decades. Bill Bonner documents the decay, from theburningplatform.com:

Infection

When we left you yesterday, we were trying to connect the bloated, cankerous ankles of the US economy to the sugar rush of its post-1971 credit-based money system.

Today, we look at the face of our government. It is older… with more worry lines and wrinkles. But whence cometh that pale and stupid look?

That is also the result of the same advanced diabetic epizootic that has infected American society.

Soft and Mushy

After real money and real savings left the economy circa 1971, GDP growth rates fell. Wages atrophied. And now, for the first time in 35 years, American business deaths outnumber business births. The body economic grew soft and mushy – unable to hold itself erect or to stand on its own two feet. Thenceforth, it needed the crutch of increasing credit.

The new credit-based monetary system meant that Americans had less real wealth. But until 2007, they could still get what they wanted by borrowing. Few noticed that they were borrowing from the company store and becoming slaves to their credit masters.

No one ever figured out how to create gold. So, Washington insiders changed the money system in two steps. In 1968, LBJ asked Congress to end the requirement for the dollar to be backed by gold. And in 1971, “Tricky Dicky” ended the direct convertibility of dollars to gold.
With the new dollar, unbacked by gold, they could create all the money they wanted. After the 1970s, instead of earning more money, or borrowing from the savings of his neighbors, the typical American had to grovel to the elite who controlled the credit machine.

http://www.theburningplatform.com/2015/03/27/the-american-dream-moonshine-and-scam/

To continue reading: The American Dream—Moonshine and Scam

Trust Us, by Robert Gore

No belief has been more costly and deadly than a belief in governments’ veracity. Trusting their governments, people have marched off to die in useless and hopeless slaughter, sunk their savings into depreciating and worthless currencies, consigned their children to propaganda masquerading as education, funded wasteful and counterproductive spending, and looked to their leaders for security they couldn’t provide and expertise they didn’t have. To detail the duplicitous depredations of just our own government would require multiple volumes. However, since 9/11 official mendacity has broken out to the upside. It now poses a deadly threat as the government employs it not just to justify involvement in the Middle East, but to set the stage for confrontation with Russia.

Foreign policy has always been relatively ignored by most Americans, compared to the attention paid to domestic issues. Straight Line Logic articles on foreign policy invariably garner fewer hits than domestic pieces and this one probably will, too. However, ignoring the topic, the American people have ceded foreign policy to an elite with a common mindset and goals. If stated explicitly to them, most Americans would reject both the mindset and the goals, which is where the lies come in. Furthermore, foreign policy has been and will continue to be far more consequential than many of the issues that command Americans’ attention.

The end of World War II found the US in a historically unique position. It had been the head of victorious alliance and its military had suffered far fewer losses than its allies or enemies. It had invented and used the atomic bomb. Of the world’s major nations, it was the only one whose industrial infrastructure was intact. The Bretton Woods’ monetary order had made the dollar the reserve currency. The US was the world’s unchallengeable sole superpower. That changed when the USSR detonated an atomic bomb in 1949, but within its Cold War bloc, the US was the dominant force. US leaders quite naturally came to believe that it was best for both the US and the world that the nations within the US bloc comply with US dictates, and that the bloc itself should continuously confront and challenge the Soviet bloc.

The belief in American superiority was fueled not just by US strength, but by “The Best and the Brightest” hubris of the American elite, analyzed by David Halberstam in his book of that name. The greatest nation on earth was being managed by its smartest, most accomplished people, titans from government, industry, Wall Street, and academia, primarily the Ivy League. The rest of America on the whole accepted both the elite’s characterization of itself and its control of US foreign, military, and intelligence policy. They didn’t have much choice. Most of the available information about foreign affairs—and much propaganda—came from the government, and all the major media organs parroted the party line. There was little difference between the two major political parties on foreign policy.

Vietnam was a watershed. Because it became an unpopular war and a US defeat, it has been shoved down the American memory hole, which is a mistake. One learns more from one’s failures than one’s successes. Vietnam demands far greater scrutiny and analysis than it has been given, and the US has paid a steep price for this analytical neglect. The government wove a web of lies to cover shifts in the landscape that might have, if generally recognized, led to a critical and fruitful reexamination of the US’s role in the world.

At first the US presence in Vietnam fit the Hollywood template: the US was helping beleaguered South Vietnam fight off communist North Vietnam so the South Vietnamese could enjoy the fruits of democracy and liberty. In its hubris, the US government refused to recognize or acknowledge a key reality: like the North Vietnamese government, many in South Vietnam regarded the US not as liberators, but as the latest in a long line of imperial occupiers of the country, strolling to the plate from the on-deck circle after the French had struck out. The North Vietnamese never would have achieved its widespread infiltration of South Vietnam if a large number of inhabitants had not shared its animus towards a foreign power. Hostility increased as the US supported, then assassinated, South Vietnam’s president Ngo Dinh Diem. It peaked when the US military and the CIA essentially took over running South Vietnam and the ever-escalating war destroyed villages and towns, sizable areas of the countryside, including farmland, and much of the infrastructure there.

Also unacknowledged or denied was the difficulty of fighting a guerrilla war on the guerrillas’ home turf. The story from the military and Washington was that victory was just around the corner, always only a few brigades and a little more funding away. By all conventional metrics North Vietnam suffered horrendous losses. However, it waged an unconventional and ultimately successful war both militarily and politically, gaining, with carrots and sticks, South Vietnamese support, banking on eventual American exhaustion. As US support for the war waned, the rhetoric about winning continued, but the actual strategy became a military and diplomatic effort to find a face-saving way out. By that time, enough of the mainstream media had gone off the reservation on Vietnam that the government’s ability to lie about it had been severely compromised. Alternative “facts,” analyses, and interpretations were widely available and fed the increasing skepticism.

The government also misled on the financial dimension of the war. Enamored of America’s wealth and power, the Kennedy and Johnson administrations believed the US could have it all: Vietnam and a dramatic expansion of the welfare state. However, raising taxes would have increased public opposition to one or the other or both. Deficit financing maintained the have-it-all fiction. As with Vietnam, it was left for Richard Nixon to deal with the consequences.

Nixon’s closing of the gold window in August of 1971 should have initiated a long overdue reexamination of the assumption of American omnipotence. The US would no longer exchange gold for its reserve currency. How could it insist that the world dance to its tune after it had broken this most fundamental of promises? The fall of South Vietnam four years later knocked away the US’s other prop, its military. How was it going to guarantee US bloc nations’ security when it couldn’t defeat North Vietnam?

Neither event shook the elite’s belief in American omnipotence, and the right of the US government to order the world as it saw fit. The fall of the USSR in 1991 increased its hubris but presented a problem: no more enemy against which to rally the US bloc. Ordinary Americans asked why Cold War swollen defense and intelligence budgets couldn’t be slashed, and why it was necessary for the US to maintain military bases and commitments around the world. Perhaps the money saved could be used to pay down debt or reduce taxes. The last balanced budget was achieved during the Clinton administration, in part due to a peace dividend that soon vanished.

For the elite, 9/11 was a godsend. However, to justify the subsequent renewal of US global interventionism and a dramatic curtailment of civil liberties, the American people would have to be fed the whopper of all whoppers: that Islamic extremism presented an existential threat on par and maybe even more dangerous than the Communist threat. Of all the world’s Islamic nations, only one, Pakistan, has nuclear weapons, and that is only a handful. The most terrifying weapons non-governmental Islamic extremists have are YouTube beheadings and their ability to brainwash some adherents into blowing themselves up. The religion is riven by a schism between its Sunni and Shiite sects and centuries of intrigue, rivalry, and conflict. If fundamentalists had their way, Islamic governments would return their peoples to economic and social practices putting them more than a millennium behind the developed world. The freedom responsible for mankind’s progress is anathema to them (as was again demonstrated in Paris). Yet, somehow, these retrograde nuts are a threat to conquer the planet.

So on dubious pretexts the elite jumped into the Middle Eastern hornets nest, and not surprisingly the US has been stung, repeatedly, at a cost of trillions of dollars and thousands of civilian and military deaths and severe injuries. Nobody has yet demonstrated what vital US interest was furthered by its invasions of Afghanistan and Iraq, because there was none. The neoconservative vision of remaking the Middle East, a pipe dream from the beginning, is now nothing more than a hollow joke.

Some opponents of the invasions have said they were all about oil, but the Middle East is full of oil and nations would have kept selling it to us had we never set foot in the area. Like the South Vietnamese earlier, there are many in the Middle East who are not overjoyed with the foreign presence. Having gone to school on the North Vietnamese, they have proven adept at waging defensive guerrilla war, and at outlasting domestic US support for its government’s involvements.

As the embarrassing Syrian “red line” contretemps demonstrated, the majority of Americans have grown wary of further Middle Eastern forays. Their suspicions are fueled by the internet, where bloggers, alternative media, and videos often reveal “truth” inconsistent with the government-mainstream media approved version. Not even the YouTube beheadings were enough to garner support for sending the military to fight ISIS. Obama had to promise that US troops would not take a combat role, a promise that is surreptitiously being broken.

Nothing, certainly not repeated failure or lack of public support, stops a determined US interventionist from trying again, or even doubling down. It is one thing to wage wars, unsuccessful ones at that, in backward countries in the Middle East. It is another matter altogether to tee one up against Russia. Give the interventionists their best case. Assume that Russia has been actively aiding and abetting rebels in eastern Ukraine, who wantonly shot down Malaysia Airlines Flight 17 with Russian assistance. Assume that Russia annexed the Crimea against the will of a majority of the Crimean people, who wished to remain a part of Ukraine, to which it rightfully belongs. Stretch things even farther and assume that Russia is trying to resurrect the old USSR empire, and is conducting or will conduct campaigns of subversion and overt military action in old Warsaw pact nations and the Baltic states. All of these assumptions are open to serious question, but even if taken as correct, cautionary portents abound.

The current US campaign against Russia uses economic sanctions. If the situation deteriorates into a military confrontation, a US victory is problematic. The results could be catastrophic, including the use of nuclear weapons. Russia’s massive size would give it a massive home field advantage, as Napoleon and Hitler discovered. They would probably ally with neighbor China. Both countries are increasingly resisting the American elite’s vision of global domination. The last year the news has been filled with stories of new cooperative ventures—political, economic, and military—between the two nations. Both are attempting to strengthen ties with their less powerful neighbors, offering various carrots in exchange for closer cooperation. The goal is the formation of a Euro-Asian axis strong enough to rival the US-European axis. The ultimate countermove to US domination has been strategies to develop trade, particularly trade in oil, denominated in rubles and yuan rather than dollars.

Cursory examinations of a globe and the world almanac support the conclusion that the envisioned Euro-Asian axis is no pipe dream. Russia and China, and the nations contiguous to them, contain a significant percentage, in many cases a majority, of the world’s population, resources, and land mass. This Soviet-Chinese bloc also borders the Middle East, giving it a huge advantage in any future conflict in the area, if it choses to get involved. (Which it probably won’t unless absolutely forced to do so. The Russians and Chinese have stayed out of overt military involvement in the Middle East, wisely choosing to let the US waste its time, money, soldiers’ lives, credibility, and military might in the region.)

The precipitous decline in the price of oil may just be the unhindered workings of the price mechanism in a market with a glut of supply, dwindling demand, and many producers who must keep producing even though in the long-term it is uneconomic after all costs are accounted for. This remains the most plausible explanation, but there are also a plethora of theories that “explain” the decline in terms of non-market forces. The most credible so far is that the US and Saudi Arabia are teaming up to put Russia out of business and drive Putin from power. That theory was propounded by Mike Whitney in a piece, “Is Putin Creating a New World Order? Oil Price Blowback,” which first appeared on counterpunch.org and was featured on SLL (and has been denied by Saudi Prince Alwaleed bin Talal).

Putin has been the spearhead of Euro-Asia, including the moves against the dollar. He is a formidable challenger to an US-centered world order, especially since he’s teamed up with China. He has outplayed the US government at every turn and has embarrassed an obviously overmatched Obama. It is not too much of a stretch to suggest that Obama would sacrifice US fracking industry, which he doesn’t like, and that the Saudis would bear a temporary financial hit, to get rid of Putin, who is allied with Saudi enemies Iran and Syria.

Whether or not that is the case, official US antipathy towards Putin, and a desire to see him driven from power, are unmistakable. Which means the government’s pounding drums on Ukraine, faithfully amplified by the mainstream media, are, in all likelihood, pretexts. In other words, the elite are again lying to sell the public on yet another foreign intervention, this one far more fraught with danger than previous failures.

Let’s drop the earlier, favorable-to-the-interventionists assumptions. The US’s fingerprints are all over the coup that ousted democratically elected president Victor Yanuyovch, after he veered from joining the US-EU orbit and instead accepted an offer of various commercial and financial benefits from Russia. There are ample indications of significant neo-Nazi elements within the movement that took control of the Ukraine government. That government is now nothing more than a US puppet, beholden to the US and other western governments for financial life support for its withering economy. The proof offered that Ukrainian separatists shot down Flight 17 is not conclusive, and the Russians have counterclaimed that the Ukrainian government shot it down, though that claim also requires a dose of salt. Satellites can read and photograph license plates from thousands of feet above the earth, but the photographic proof for the US claim that Russia has moved troops and military equipment into eastern Ukraine has been scant.

So the justifications for what could become the most consequential war the US has ever fought are among the flimsiest ever offered. The policy-making elite has envisioned a US-dominated world since the US assumed the pinnacle of power after WWII, and probably even before then. The post-WWII preeminence upon which that vision rested was never going to last. It was called into question with the Soviet acquisition of the atomic bomb and completely discredited decades ago when Nixon closed the gold window and the US withdrew from Vietnam. There is no reason the American bloc and the emerging Russo-Sino bloc could not come to a modus vivendi, perhaps even to their mutual benefit (idealism never completely dies). However, that would require abandonment of the elite’s untenable vision, and that won’t happen until after at least one more disastrous US intervention, if not in Russia, then somewhere else.

ONCE UPON A TIME AMERICA MINDED ITS OWN BUSINESS

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