What are the most significant developments that have occurred since 1971? Humans apparently cannot live without it, even if they want to. Stocks are very disproportionately held by the wealthiest. And I find that so fascinating. The government held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to … as the new consensus value of the dollar vs. gold. But it’s because of the soft money that deregulation causes problems—not the deregulation itself. Since 1971 (when the last remnant of the gold standard was abandoned), the inflation rate in the United States has had a yearly growth rate of 4%. The recording of this interview was not meant to be published, but as Ben and Collin were very pleased with the conversation, I sent them the audio, which they have published as a podcast. Ben: This is the idea of zombie companies and the zombie economy I’m sure you’re familiar with. © 2020 Forbes Media LLC. The gold standard, by limiting the dollars the government can print to the weight of gold it holds in reserves, is one way of doing so. If you would like to listen to more of this conversation, please click here. You were watching the repurchase agreement [repo] markets meltdown in the United States. I’m the type of person that when I get into something, I tend to go all the way and learn as much as possible. Unlike Greenspan, who gave a lot of hints that he was actively stabilizing the dollar vs. gold, Yellen and now Powell have kept mum. It was Collin’s idea to just ask the question: what the f*ck happened in 1971? It’s a feedback loop of pumping liquidity into the system to prevent the liquidation of malinvestment. Ben: Through learning about the history of money, we discovered the Nixon Shock and the ending of the Bretton Woods agreement. Jan: Do you think there’s a strong lobby from the banking industry to keep this system how it is? again at the beginning of 1985. The gold standard makes chronic deficit spending by governments more difficult, as it prevents governments from inflating away the real value of their debts. That attack culminated on August 15, 1971 in the fateful decision to take the U.S. dollar off of the gold-reserve standard and to end Franklin Roosevelt’s Bretton Woods System, a decision which Lyndon LaRouche forecast and against which he fought throughout his life. Collin: Yes. On the homepage you will find a collection of charts that all show a remarkable change around 1971. Ever since the U.S. left the gold standard for good in 1971, some politicians and investors have called for its return. In short, what Chairman Volcker did was to base monetary policy on the secular pattern of spot commodity prices (the market price of a commodity for current delivery). Following a meeting I had with Chairman Volcker in 1982, I cowrote an article for the editorial page of the Wall Street Journal. The control being the price of … Gold standard, monetary system in which the standard unit of currency is a fixed quantity of gold or is kept at the value of a fixed quantity of gold. Instead, Volcker followed the academic fashion of the time, and began a project that had never been tried before – the “monetarist experiment.” It seemed like a good idea on paper. by Jan Nieuwenhuijs via Voima Insight. Jan: What made you launch the website about economic developments that started in1971? As we covered in our 1968 gold price page, the 1944 Bretton Woods agreement was coming undone due to a combination of a low defaltionary fixed $35 oz USD gold price in 1934 (which only then covered some 40% of the US dollar monetary base).. The last remnants of the gold standard were abandoned in August 1971, when President of the United States Richard Nixon decided to close the gold window. What is your background? We obviously found this rabbit hole and most of it’s from our study of money and monetary economics. We’d look at the early fiat experiments, we’d go back to the bi-metal standards, we’d look at the process of coin clipping under the feudal lords. ; then up to $300/oz. Still others look back longingly to the fixity of exchange rates. And the meme was born. The Analysis And Discussion Provided On Silverdoctors Is For Your Education And Entertainment Only, It Is Not Recommended For Trading Purposes. These dynamics have drawn society apart and hollowed out the middle class. The “monetarist experiment” was a failure. We’ve seen the discount rate continue to be artificially pushed down, despite the fact that there isn’t the accumulation of capital that in a free market would normally push that discount rate towards lower numbers. Jan: The answer is that without central banks we would be better off? The gold specie standard ended in the United Kingdom and the rest of the British Empire at the outbreak of World War I, when Treasury notes replaced the circulation of gold sovereigns and gold half sovereigns. If you study things like the Cantillon effect, you know that those with the fewest degrees of separation from the printing press benefit the most from the creation of new currency. We’d look at the creation of the Federal Reserve in 1913, and then ideally, we’d go all the way back to the birth of fiat currencies in the United States before the U.S. was even a country. Interest rates soared, and some people hoarded canned goods. [ 4] [ 118] Under a gold standard, new money could only be printed if a corresponding amount of gold were available to back the currency. 6  He no longer allowed the Fed to redeem dollars with gold, which made the gold standard meaningless. Our principal executive offices are located at 19886 Ashburn Road, Ashburn, Virginia 20147 and our telephone number is (703) 724-3800. The Commentary On Silverdoctors Reflects The Opinions Of The Doc And Other Contributing Authors. of gold to over $350/oz. The last remnants of the gold standard were abandoned in August 1971, when President of the United States Richard Nixon decided to close the gold window (foreigners couldn’t redeem dollars for gold at the Treasury anymore). NSRDS-NBS 1, 12p. Collin: Monetary expansion—but we get a lot of criticism on this. But, it is hard to believe that this outcome was purely by accident. Although a basket of commodity prices may have been the main tool, the effect was to gradually stabilize the dollar’s value against gold. I don’t have an economics background, but as of recently I got very interested in economics. Collin: We often attribute central banks to the feudal lords that clipped the coins and then recirculated the currency at their face value. Rather than it being attributed to the business cycles that always happen under these types of expansionary monetary policies. Jan: What do you say are the most significant developments that have occurred since 1971. in 2011. All Rights Reserved, This is a BETA experience. Source: Adobe/corlaffra. This report describes the operation of the NSRDS. At first, the swings were wild. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change, Michigan Economic Development Corporation With Forbes Insights, centuries until the breakup of Bretton Woods in 1971, either a gold standard or a “PhD standard,”. Now two lines had been drawn in the sand, one at $300/oz. Ben: That’s it. The times when we haven’t had this, in the 1970s and the Bernanke years, it’s been either a one-way trip south, or a rollercoaster of chaos. A gold standard uses gold—directly or indirectly—as money. Jan: So, who are you guys? Financial engineering in a society with artificially cheap credit has grown more profitable than entrepreneurship. The world was moving toward $350/oz. Stay up to date, subscribe to Voima Insight—click here. during the decade – a devaluation of 10:1 – the U.S. and the world economy was mired in an intensifying stagflationary slump that many feared would lead to hyperinflation, revolution and war. I write about monetary and tax policy for the 21st century. They tend to go in 10-year cycles. You can narrow or broaden the context of this timeline by adjusting the zoom level. Leaving the gold standard helped to smooth business cycles. Life was good in the 1960s. Other countries began to question America’s ability to actually cover all the American currency in circulation with gold. Jan: On your website, the first chart I see is about inequality. Currently, everyone is attributing our current economic downturn to the coronavirus pandemic, and is saying, “no one could have seen the corona crisis coming.” While, if you were paying close attention to financial markets in the precursor of corona, you were seeing warning signs that things were beginning to malfunction. Jan: At the moment there’s a lot of social unrest in the United States. All of Latin America exploded into hyperinflation for a decade. (Louvre Accord). But, neither he nor his economic advisors could make much sense of what was going on. Since leaving the gold standard in 1971 US currency in circulation (M1) increased from $48.6 billion to over $5.2 trillion in June 2020. – but nevertheless intentional effort to stabilize the dollar’s value vs. gold, otherwise known as a gold standard system, for more than half of that time. The gold standard works even when it is by lucky chance. This means that between 1971 and 2017, the price level has increased six times . Serious firepower was brought to the task, probably including financial market manipulation at an unprecedented level. Malinvestment that’s perpetuated and unable to be liquidated, in such a way that it creates second and third order problems in our society that are exacerbated as this bubble continues to be expanded, and the can of the liquidation of malinvestment is kicked down the road. 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