The Nixon Shock: 1971
“Inauguration Day was cloudy, grim,” wrote Arthur Burns in his diary on Jan. 20, 1969. As he watched President-elect Richard Nixon, Burns—an immigrant from Galicia, the son of a housepainter who had risen to become the foremost expert on U.S. economic cycles and chief economist to Dwight Eisenhower—saw a man with “a look of exaltation about him.” It was not a feeling Burns shared. “I would have felt better if his head were bowed and his body trembled some.”
Nixon was inheriting an overheated Economy—inflation was already a concern. Burns, 64, would be joining the Administration as a uniquely trusted adviser. In 1960, when then Vice-President Nixon was seeking the White House, Burns had warned him that if the Federal Reserve tightened interest rates, it could damage Nixon’s chances. It had played out just so: The Fed tightened, the Economy suffered a recession, and Nixon lost to John F. Kennedy. Nixon never forgot the power of the Fed, and he remembered Burns as an Economist with political savvy.
The Nixon Shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, the most significant of which was the unilateral cancellation of the direct convertibility of the United States Dollar to Gold.
THE GOLD STANDARD
The Gold Standard as “a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of Gold. National money and other forms of money (bank deposits and notes) were freely converted into Gold at the fixed price.” A county under the gold standard would set a price for Gold , say $100 an ounce and would buy and sell gold at that price. This effectively sets a value for the currency; in our fictional example $1 would be worth 1/100th of an ounce of Gold. Other precious metals could be used to set a monetary standard; silver standards were common in the 1800s. A combination of the Gold and Silver standard is known as bimetallism.
On the “Gold” Standard, you cannot print Gold. Every Dollar, Yen, Euro would be backed by Sold or Silver. The reason that public officials do not want a gold standard is because they cannot print precious metals. Gold and silver are real money. The money used by ever country is not a money, they are currencies backed by nothing but debt.
What Do We Use Today?
Almost every country, including the United States, is on a System of Fiat Money (Commodity money is based on a good, often a precious metal such as Gold) , which the glossary defines as “money that is intrinsically useless ( its only paper ); is used only as a medium of exchange”. We saw in the article ” Why Does Money Have Value ” that the value of money is set by the Supply and Demand LAW for money and the Supply and Demand for other goods and services in the economy. The prices for those goods and services, including Gold and Silver, are allowed to fluctuate based on market forces.
For the first time in human history, the entire world is on a Fiat Monetary System. Fiat Money is money that is backed by debt and the promise to repay. In other words, the intrinsic value of the bill (any denomination) is zero. You can take any bill out of your pocket and look at the top: It reads, “Federal Reserve Note”. The Federal Reserve is not a part of the U.S.Government and has Zero reserves. The Federal Reserve is in fact a private bank. When you hear that the Fed is using “Quantitative Easing” to prop up the economy. They are printing paper money.
Gold and Silver have been used as money for the past 3000 years. It is light, spongable, and rare. It will not tarnish nor break down. Go out and start investing in Gold and Silver to protect your wealth.
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