What did Nixon do 50 years ago that still haunts us today? It’s not Watergate – InsideSources


On August 15, 1971, President Richard Nixon decreed that the US dollar could no longer be redeemed for the gold owed, not even to foreign governments. This wrong decision was a desperate attempt to avoid the consequences of previous wrong decisions.

Nixon decided to end gold convertibility. He claimed it was temporary, but his decree was a dishonorable failure to meet the U.S. government’s obligations.

Here is a brief history of the previous bad decisions that led to Nixon’s really bad decision.

Nixon’s action came after a long series of bad political decisions dating back to 1792 when the Coinage Act fixed the price of silver and gave silver owners unearned purchasing power.

Next, the law changed in 1834, transferring fortunes from silver owners to gold owners. The former were more likely to be farmers and artisans who owned silver. The latter were more likely to be the rich who deposited gold in banks

In 1861 the government declared that paper money could not be redeemed for metal. In 1862 the government issued the later notorious “greenbacks”, and in 1863 banks with a federal charter were able to issue irredeemable banknotes. Declared as legal tender, the creditors either had to accept it or waive payment.

After the civil war, the government resumed payment in cash, but caused even more mischief. The Coinage Act of 1873 effectively demonetized silver. Farmers and artisans suffered further losses and now had to pay debts in gold.

The “crime of ’73” was still on people’s minds in the 1896 election. William Jennings Bryan competed against William McKinley. Bryan wanted to go back to the bimetal system. McKinley was for the gold standard. McKinley won.

But Bryan reappeared in the Woodrow Wilson administration and was instrumental in the passage of the Federal Reserve Act in 1913, which gave the government a monopoly on currency issuance.

The Federal Reserve (the Fed) was supposedly created to stabilize the economy. The real result was that the economy was destabilized. The interest rate rose first, then fell. The Fed as the last lender Resort, tempted the banks to speculate on this moral hazard – lowering interest rates allowed them to borrow more cheaply.

To ward off bank runs, President Franklin Roosevelt made another bad decision. He declared it a crime to own gold and abolished all contractual clauses that provided for payment in gold (except to foreign governments). The most conservative savers were forced to buy government bonds.

At the end of World War II, the Bretton Woods system was another bad political move. Other countries had to treat the US dollar like gold. Everyone – especially US government officials – assumed that this system was in the interests of the US. In fact, it was designed by Harry Dexter White, who was later discovered as a tool of the Soviet Union.

In fact, the US abused its “exorbitant privilege” and some countries began to exchange their dollars for gold. The outflow of gold from the US Treasury Department accelerated. Nixon responded to this crisis by ending the redemption of the dollar. Although he stopped the gold withdrawals, he accelerated the national and private debt.

These days central planners are doubling down to prevent debt collapse. Our monetary masters buy trillions and trillions of worth of assets. They think this will somehow shake off the malaise that has persisted since the 2008 financial crisis.

And the next crisis can already brew. While the Fed is buying government bonds from the banks, it is also doing reverse repo transactions. With reverse repos, the Fed borrows cash from the banks and provides them with government bonds as collateral. Understood? The Fed buys bonds from the banks, then turns around and temporarily sells the bond back to them (reverse repo is a short-term contract).

Instead of central planning by the Fed, a gold standard is simpler and better. We, the people, should have the right to own gold coins or bank deposits. This choice is key to setting interest rates in a free market.

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