For 180 years, it was said the dollar was ‘as good as gold.’ In fact, it was as good as gold; U.S. government creditors could convert their dollars to U.S. gold. The currency was 100% convertible to gold in foreign exchange from 1792 (President George Washington) until the dollar’s tie to gold was severed completely on August 15, 1971 (President Richard Nixon).
The colossal decision to remove the discipline of gold from the dollar was called the “NIXON SHOCK.” Overnight, the dollar was a “fiat” currency (backed by nothing tangible).
Although Nixon killed the gold standard, the monetary role of gold did not die. Gold is timeless money. The sole purpose of gold is to store value. All currencies are constantly measured against the timeless value of this monetary metal. According to Alan Greenspan, former Federal Reserve Board Chairman, the dollar is no match for “the golden measuring rod:”
“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.” (Address by Alan Greenspan to the Council on Foreign Relations, October 29, 2014, Gillian Tett, “Financial Times” of London.)
MEASURING THE VALUE OF ONE DOLLAR:
From 1792 to 1933, 1 HEAVY dollar was equivalent to 1/20th of a 1-oz gold coin.
From 1934 to 1971, 1 LIGHT dollar was equivalent to 1/35th of 1 oz of gold.
On the day credit collapsed worldwide (August 9, 2007), 1 FIAT dollar equaled 1/662nd of 1 gold oz.
On March 14, 2008, the dollar fell below 1/1,000th of 1 0z of gold for the first time.
Today, 1 FIAT dollar equals 1/1,313th of a 1-oz gold coin (left).
YOUR MONEY IS BLEEDING VALUE.
Since the dollar was debauched in 1971, the currency is down 3,600% against gold (it now takes 36 times as many dollars to buy a 1-oz gold coin). On the day of the global credit-collapse (August 9, 2007), gold was $662/oz. Today, it takes twice as many dollars to buy the same gold coin. In only 11 years, the dollar has lost about half of its purchasing-power.
2007 dollars had 2 times more strength (to buy food, housing); 1971 dollars could buy 36 times more goods and services; and 1933 dollars had 65 times more purchasing-power.
Before the dollar was delinked from silver and 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.
Image by Daniel Terdiman/CNET.
Now that the dollar does not represent tangible value, the value of paper currency is derived from faith (confidence in the “full faith and credit” of government).
But according to monetary history, faith-based currencies (not backed by gold and/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 dollar was not backed by silver, panic ignited near-hyperinflation in 1779 (47% inflation per month).** Congress redeemed the dollars at 1,000-to-1: 1,000 PAPER dollars equaled the value of 1 SILVER dollar.
- Congress created Greenback dollars to pay for the Civil War. When people lost confidence in the currency, they spent the money as fast as possible. Inflation peaked at 40% per month in 1864 (Greenback $1 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. In 1919, Germans paid 16 marks for U.S. silver dollars. By the 1923 German hyperinflation, 1 SILVER dollar was equivalent to 4.2 trillion ℳarks.
When currency is backed by nothing, there are no limits to the supply of printing-press-money. As a currency’s value goes down, it takes more and more of the FUNNY MONEY to buy REAL MONEY. For example, it now takes millions of bolívares to buy gold in Venezuela. Last August (2018), 1 Venezuelan bolívar equaled 1/211 millionth of 1 oz of gold.*
FUNNY MONEY KEEPS THE SHIP AFLOAT.
On August 9, 2007, a single “credit event” (Banque BNP Paribas) sparked a worldwide credit-collapse. Within hours, the dollar was in free-fall; market liquidity evaporated; inter-bank lending locked up; and the international monetary system FROZE.
In 2008, Bear Stearns collapsed; Washington Mutual Savings Bank was seized after a 9-day bank-run (WaMu was largest-ever bank failure); Merrill Lynch collapsed; the stock market crashed (Dow Jones Industrial Average had the biggest-ever 1-day drop); and Lehman Brothers collapsed (largest-ever bankruptcy).
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 that 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 VOLATILE “CREDIT 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. But if you don’t hold it, you don’t own it:
Get American Silver Eagles
(new 1-oz silver dollars).
Get American Gold Eagles
(new $50 1-oz gold coins).
Take delivery of GOLD & SILVER DOLLARS.
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.
Submitted by Denise Rhyne.
THE FUNDAMENTAL TRANSFORMATION OF AMERICA:
WHAT ARE CAPITAL CONTROLS?
WEIGHTS, MEASURES & BALANCING SCALES:
TABLE of CONTENTS: Ancient Monetary System; CARAT Weights; KARAT Purity; TROY Weights; METRIC Weights; MILLESIMAL Fineness; FAR EAST Weights; POUND (Pound Sterling, Pennyweight, Sovereign); DOLLAR (Old Gold Coins); Historical GOLD-to-SILVER RATIOS (U.S. 90% Silver Coins, new American Eagles); BIBLE Weights: TALENT, MANEH, SHEKEL, GERAH, BEKAH (Table); WORLD COINS (Gold Contents).
GOLD IS A PRUDENT INVESTMENT:
Above: $5 Indian, $20 St. Gaudens, and $10 Indian ($1 was equivalent to a unit of gold weighing 0.048 oz or 23.22 grains). The official price of gold was fixed at $20.67/oz (1792); raised to $35 (Jan. 1934); raised to $38 (Dec. 1971); the final official price was raised to $42.22/oz (Feb. 12, 1973).