The End of Bretton Woods
by Peter Coyne
Please, no more of this 'Nixon took us off of the gold standard' garbage!" writes one reader in response to yesterday's reckoning. If you missed it, we learned about two precursors to our present monetary woes in that episode:
First, we learned from our founder, Addison Wiggin, that 70 years ago, during the Bretton Woods Conference at the end of World War II, the world left the gold standard. The United States, being the world's undisputed hegemon, was able to snag a role as the world's reserve currency -- the most widely held and used currency. To maintain trust in the greenback, foreign nations would be able to trade $35 for an ounce of U.S. gold upon request.
Second, in our first featured video -- an interview we conducted with Mr. Lewis Lehrman last year -- we learned that the U.S. abused this privilege by running massive trade deficits. That is, by spending more money that it had to buy more than it produced. Finally, instead of worrying about balancing the books, President Nixon decided 43 years ago this Friday to remove the one hurdle to unlimited government spending -- convertability of the dollar into gold.
That brings us back to our dear reader. "FDR was the one who removed us from the gold standard when he issued an illegal executive order that prohibited citizens from owning gold":
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He ordered them to turn in gold, and made it impossible for any American to convert gold notes to actual gold. Nixon in fact made gold ownership legal again by ending FDR's prohibition, and protected America's gold stores, (whatever we had then), from being taken by the British, etc., by doing as this writer describes.
"If someone wants to point a finger, point it at FDR, who took us off gold, and at LBJ, who removed silver from our coinage, both unconstitutional and illegal moves that Congress went along with.
We have no qualms over your history. Our point, however, is that the global monetary system shifted on Sunday, Aug. 15, 1971. Since then, the dollar's value has been an enigma.
What is a dollar?
It's just a claim to another dollar… or four quarters… or 10 dimes. You have to pay taxes with it, so most people use them. But it has no intrinsic value.
We're reminded of the C-SPAN clip featured in Addison's documentary I.O.U.S.A. It was between Federal Reserve Chairman Alan Greenspan and our former employer, Congressman Ron Paul. Greenspan agreed that no one really knows what money is today, and therefore, there was no way the Fed could hope to ever manage it:
Alan Greenspan: As I've said earlier, the difficulty is defining what money truly is. We have been unable to define a monetary aggregate that will give us a reliable forecast for the economy. Until we find a reliable "M" we will go light on the use of monetary aggregates for monetary policy purposes.
Ron Paul: So it's hard to manage something you can't define.
Alan Greenspan: It's impossible to manage something you cannot define…
We can tell you from working for the good doctor that he had no delusions about the mission he was on. Dr. Paul was under no impression that he alone could reverse the ship of state's course toward monetary collapse.
In the final years of his congressional tenure, he was even able to claim a small leadership position over the Financial Services Subcommittee on Domestic Monetary Policy and Technology. That's one of the subcommittees that oversaw the Federal Reserve's decisions.
|Politics, Dr. Paul notes, is, at best, a tool for education.|
It's important to keep in mind, however, that the likely solution is not a political one.
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