For 180 years, it was said the currency of the United States was “as good as gold.” In fact, the dollar was as good as gold. The dollar was 100% convertible to gold in foreign exchange from 1792 (under President George Washington) until gold-backing was removed from the dollar on August 15, 1971 (under President Richard Nixon).
The colossal decision to sever the dollar’s tie to gold was called the “NIXON SHOCK.” Overnight, the dollar was backed by nothing tangible.
Although Nixon killed the gold standard, the monetary role of gold did not die. Gold is a “measuring rod.” All currencies are constantly measured against the timeless value of gold.
MEASURING THE EROSION OF DOLLAR VALUE
The history of the dollar is a record of sudden changes in the value of the currency AGAINST GOLD (1792, 1864, 1913, 1933, 1971, 2008).
From 1792 to 1933, 1 HEAVY dollar was equivalent to 1/20th of 1 oz of gold ($20.67/oz).
From 1933 to 1971, 1 LIGHT dollar was equivalent to 1/35th of 1 oz of gold.
One FIAT dollar was equivalent to 1/662nd of 1 oz of gold the day credit collapsed worldwide on August 9, 2007.
The dollar fell below 1/1,000th of 1 0z of gold for the first time on March 14, 2008.
Today, 1 dollar is equivalent to 1/1,268th of a 1-oz gold coin. Since 1971, the dollar has fallen 3,600% against gold (a 1-oz coin costs 36 times more dollars). Since 1933, the dollar has fallen 6,400% against gold (it takes 64 times as many dollars to buy a 1-oz $20 gold coin).
Why does gold measure currency value?
According to J.P. Morgan, ALL monetary instruments derive their value (credit) from gold. The Wall Street banker explained to Congress: “Gold is money, and nothing else.” (Testimony of J. Pierpont Morgan; “Bank and Currency Committee;” December 18 and 19, 1912; U.S. House of Representatives; Washington, D.C.)
When currency is backed by nothing, there are no limits to the supply of printing-press-money. As the value of a currency diminishes, the price of gold rises. For example, 1 Venezuelan bolivar is now equivalent to 1/211 millionth of 1 oz of gold.*
Image by Daniel Terdiman/CNET.
Before the dollar was delinked from gold, its purchasing-power was inflated away systematically. Until 1971, ‘money-printing’ was restrained by the nation’s finite supply of gold. Today, the dollar-supply is unlimited.
Now that the dollar does not represent tangible value, the value of the dollar is derived from faith (confidence in the “full faith and credit” of the government).
But according to monetary history, faith-based currencies (not backed by gold or silver) all end the same way. In the last stage, a sudden loss of confidence is the trigger that unleashes ferocious money velocity. That happened twice in U.S. history.
In 1776, Continental dollars were printed to finance the American Revolution. When people realized the currency was not redeemable in silver or gold, panic ignited near-hyperinflation (47% per month).** In 1779, Congress agreed to redeem the bills at 1,000-to-1: 1,000 PAPER dollars equaled the value of 1 SILVER dollar.
The U.S. Congress created Greenback dollars to pay for the Civil War. All of a sudden, people lost faith in the currency’s convertibility to gold. Fearful Americans spent the money as fast as possible. In 1864, inflation peaked at 40% per month (the Greenback dollar fell to 35¢).**
Germany’s booming stock market was the envy of Europe from 1920 to 1922. When market psychology reversed, confidence in the papiermark (ℳ)*** collapsed. Germans paid 16 marks for U.S. silver dollars in 1919. By the 1923 German hyperinflation, 1 U.S. silver dollar was equivalent to 4.2 trillion ℳ.
FUNNY MONEY KEEPS THE SHIP AFLOAT.
On August 9, 2007, a single “credit event” sparked a worldwide credit-collapse. Within hours, the dollar was in free-fall; market liquidity evaporated; inter-bank lending locked up; and the entire monetary system FROZE.
In 2008, Bear Stearns collapsed; Washington Mutual Savings Bank was seized after a nine-day bank run (“WaMu” was the largest-ever U.S. bank failure); Merrill Lynch collapsed; Lehman Brothers collapsed (the largest bankruptcy in U.S. history); and the stock market crashed (the Dow Jones Industrial Average had the biggest one-day drop in U.S. history).
The banking system came close to locking up again in Nov. 2011, Oct. 2014, and Aug. 2015. At the Ludwig von Mises Institute, Dr. Jürgen Stark, then chief economist for the European Central Bank, told the audience the only thing keeping the global financial system going since 2008 is money-printing:
“The whole system is based on pure fiction, groping since 2008 to avoid a second Lehman, which if it happens, the system will not survive.” (Professor Dr. Jürgen Stark, then ECB chief economist, European Central Bank; mises.org)
In a recent interview with German newspaper “Handelsblatt,” Dr. Stark predicted the Eurozone debt crisis will soon worsen: “I think the crisis will come to a head in late autumn. We are entering a new phase of crisis management.” (As reported in “The Guardian,” U.K., August 30, 2018.)
PREPARE FOR “VOLATILITY EVENTS.”
Financial markets are inter-dependent. The next time markets seize up, loss of confidence in one major currency could trigger implementation of controls on cash and investments. You need portfolio insurance (from third-party risk). Physical gold and silver coins will give you liquidity under all market conditions.
Get American Silver Eagles
(new 1-oz silver dollars).
Get American Gold Eagles
(new $50 coin contains 1 oz of gold).
“Yes. Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” (Alan Greenspan, former Chairman of the Federal Reserve, Address to the Council on Foreign Relations, November 2014, from Gillian Tett, “The Financial Times.”)
Take delivery of PHYSICAL gold & silver.
REAL MONEY stores value for your family.
* Forbes: “Wait Until You See The Price of Gold In Venezuela Right Now,” by Frank Homes, August 6, 2018.
** Thomas E. Woods, Jr., “The Revolutionary War and the Destruction of the Continental,” Ludwig von Mises Institute Library, Mises.org, October 11, 2006.
** Professor Steve Hanke and Professor Alex Kwok, “On the Measurement of Zimbabwe’s Hyperinflation” (U.S. monthly inflation statistics), “The Cato Journal,” Vol. 29, No. 2, pp. 353 and 354, Spring-Summer 2009, The Cato Institute. (Hyperinflation is defined as a rate of at least 50% per month.)
*** Professor Hans F. Sennholz, “Hyperinflation in Germany: 1914-1923,” Mises Daily Articles, Library of the Mises Institute, Mises.org, October 27, 2006.
*** Steven B. Webb, The Supply of Money and Reichsbank Financing of Government and Corporate Debt in Germany, 1919-1923, “The Journal of Economic History,” Vol. 44, No. 2, pp. 499-507, Cambridge University Press, June 1984.
GOLD IS A PRUDENT INVESTMENT:
WEIGHTS, MEASURES & BALANCING SCALES:
CONTENTS: Ancient Monetary Weights: TALENT, MANEH, SHEKEL, GERAH, BEKAH; TROY Weights; METRIC Weights; CARAT Weights; KARAT Purity; MILLESIMAL Fineness; FAR EAST Weights; British POUND (Pennyweight, Pound Sterling, Sovereign); DOLLAR (Old U.S. Gold Coins); Historical GOLD-to-SILVER RATIOS (U.S. 90% Silver Coins, Gold & Silver American Eagles); BIBLE Weights (Table); WORLD COINS (Gold Contents).
The monetary role of precious metals does not change. REAL MONEY stores value over millennia.
Submitted by Denise Rhyne.