August 15, 1971
On Sunday, August 15, 1971, Richard Nixon appeared on TV and announced that the USA were “temporarily” abandoning the gold standard. Today marks the 50th anniversary.
He said,[1]
“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 interest of monetary stability and in the best interests of the United States.
Now, what is this action--which is very technical--what does it mean for you?
Let me lay to rest the bugaboo of what is called devaluation.
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.”
Of course, today the USA do not produce near what we consume. There are not enough American-made products. Luckily, nations such as China are willing to work for our dollars.[2]
In 1971, China was not the world power that they would become in 2021 because they were closed off to the capitalistic West. Nixon actually opened up China following the end of the gold standard, which would help alleviate import prices.
According to History.com,[3]
“Still mired in the unpopular and frustrating Vietnam War in 1971, Nixon surprised the American people by announcing a planned trip to the PRC in 1972. The United States had never stopped formally recognizing the PRC after Mao Zedong’s successful communist revolution of 1949. In fact, the two nations had been bitter enemies. PRC and U.S. troops fought in Korea during the early-1950s, and Chinese aid and advisors supported North Vietnam in its war against the United States.”
Q. What happens if the Chinese either do not want the dollar or if they just think that it is worth less as it is printed to infinity and beyond?
A. Import prices increase.
Indeed, the USA hit our debt limit on August 1. Treasury Secretary Janet Yellen wrote a letter to Speaker of the House Nancy Pelosi stating,[4]
“Dear Madam Speaker:
I write to keep you apprised of actions the Treasury Department is taking in regard to the debt limit. In my letter of July 23, I noted that the Bipartisan Budget Act of 2019 suspended the statutory debt limit through July 31, and informed you that beginning on August 1, the outstanding debt of the United States would be at the statutory limit. Due to the reinstatement of the debt limit, on July 30 Treasury suspended until further notice the sale of State and Local Government Series securities. This letter serves to notify you, pursuant to 5 U.S.C. §§ 8348(l)(2) and 8438(h)(2), of additional extraordinary measures Treasury began using today”.
Without an increase in the debt limit, the USA cannot take on any more debt, which is how the Federal Reserve creates money (and lowers interest rates).
That will result in higher taxes or a debt default.
So the choice is between higher import prices caused by inflation to avoid defaulting on the debt or defaulting on the debt and unaffordable import (since most Americans get their income from taxes).
In the end, the USA will re-industrialize. There will just be a massive depression as our empire defaults back to the Constitutional Republic. Welfare programs and wars are expensive. Consuming more than you produce and relying on exporting dollars that are as good as gold for imports only works so long as the dollar is as good as gold.
On Sunday, August 15, 1971, Richard Nixon appeared on TV and announced that the USA were “temporarily” abandoning the gold standard.
The photo of Kabul was taken over the weekend. The author was deployed there in 2012-2013. History repeats.
[2]https://schiffgold.com/videos/peter-schiff-americas-consumption-economy-is-a-bubble-economy/
[3]https://www.history.com/this-day-in-history/nixon-arrives-in-china-for-talks