The removal of the gold standard, otherwise known as the “Nixon Shock” has been widely regarded as a political success, but also left Americans with an economic disaster on hand, in which the negative effects still linger to this day.
Standpoints on the Gold Standard- Video Transcription
Patrick Brunson: 00:00
The removal of the gold standard or the Nixon shock has been widely considered to be a political success on Capitol Hill, but it also created an economic disaster and bringing on the stagflation of the 1970's, and leading to the instability of floating currencies which eventually led us to where we are today. The dollar plunged by a third during the 70's. In fact, US officials couldn't even get other countries to agree to a formal reevaluation of their own currencies in correlation to the dollar. Furthermore, the Nixon shock unleashed enormous speculation against the dollar. We were printing so much money at the time with the Vietnam War and the Big Space Race that it created a lot of international speculation. Basically, other countries thought that we were printing more money than what we had in gold to back it and eventually forced central banks around the world to intervene significantly in the foreign exchange market to prevent their currencies from increasing too much in value.
Patrick Brunson: 00:58
In fact, within two days, August 16th and 17th of 1971, Japan Central Bank had to buy $1.3 billion to support the dollar and keep the yen at the old rate of three-hundred-sixty yen to $1. Japan's foreign exchange reserves rapidly increased a $2.7 billion, a 30% increase in just the first week, and then a week later, $4 billion (the week after). Still, this large scale intervention by Japan Central Bank could not prevent the depreciation of US dollars against the yen. France also was willing to allow the dollar to depreciate against the franc, but not allow the franc to appreciate against gold. So since then, many economists have expressed regret over the abandonment of the gold standard, and many blame this move as to why we have so much debt today as a nation and why more than 50% of politicians have reached millionaire status, but only 1% of the private sector having the same position.
Patrick Brunson: 02:02
This is a big deal because once Nixon took the dollar off the gold standard in the 70's, it changed everything. In fact, prior to this happening in the 50's and 60's, a blue collar worker like a carpenter or painter could go to work and provide enough for the wife to stay at home, take care of the kids, and still put money away for savings and retirement – all off just a one income household. Well, after Nixon took the dollar off the gold standard, it created mass inflation. In fact, when the 80's came around, the the husband was no longer able to work and make enough to provide for a family, so the wife had to go to work. Then, the 90's came around. Again, more inflation, devaluation of the dollar, and two incomes was not enough to support a single family home. So the wife and the husband had to get a second or third job just to make ends meet.
Patrick Brunson: 02:58
As we moved into the millennium, the printing of money did not shy away. Not even a little bit. In fact, during the first 10 years of the millennium, a lot of people had to start borrowing. This is an issue now because, here we are in the year of 2019. A lot of people have one or two, maybe even three jobs just to get by. People are still racking up credit card debt just to make ends meet, and they don't have a single dime put away for savings. The average millennial who's in their late twenties-early thirties is supposed to have a certain amount already started for retirement, but most of them don't have more than $2,000 in their own bank account. This is a problem because whenever we print this much money, it steals from our kids, and our grandkids, and future generations to come. It's a problem because they are going to have to work twice as hard as we have to work today just to make ends meet. That's why you have record numbers of student loan debt. You have record numbers of people defaulting on their loans with their homes and their cars. It's a credit bubble, and we are getting to the breaking point.
Patrick Brunson: 04:07
This is real important information to take note of. If you'd like to get more information, obviously you can pick up US Money Reserve's latest report. We've been discussing this quite a bit – it's “In Debt & Out of Time.” It talks about the $184 trillion nightmare that we now have globally and how it can affect you in the long term. So please click on the link below or call the number on your screen to get your copy. If you're watching from Youtube, please subscribe to our channel so that you don't miss a single episode. I'm US Money Reserve's Patrick Brunson, and as always, thank you for watching Market Insights.