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 paper dollar was backed by nothing tangible.
Although Nixon killed the gold standard, the monetary role of gold did not die. Gold is timeless money. All currencies are measured against the timeless value of this monetary metal.
According to Alan Greenspan, former chairman of the Federal Reserve Board of Governors, the fiat 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 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.
From 1933 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 dollar equals 1/1,304th of a 1-oz gold coin (left).
Since the dollar’s tie to gold was severed in 1971, the currency has fallen 3,600% against gold (it now takes 36 times as many dollars to buy the same amount of gold). Since the first day of the on-going, global debt-crisis (August 9, 2007), dollar value has fallen precipitously against gold (from $662 per oz).
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 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 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 currency was not redeemable in silver or gold coins, panic ignited near-hyperinflation in 1779 (47% inflation per month).** Congress redeemed the dollar bills at 1,000-to-1 (silver): 1,000 PAPER dollars were equivalent to 1 SILVER dollar.
- Congress created Greenback dollars to pay for the United States 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. 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 the value of FUNNY MONEY diminishes, the gold price rises. For example, the price of gold in Venezuela is 211 million Bolívares per oz: 1 Bolívar equals 1/211 millionth of 1 oz of gold (August 2018).*
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 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 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 “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 1-oz gold coins).
Take delivery of PHYSICAL silver and gold.
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.
WHAT ARE CAPITAL CONTROLS?
GOLD IS A PRUDENT INVESTMENT:
WEIGHTS, MEASURES & BALANCING SCALES:
CONTENTS: Ancient Monetary Weights: TALENT, MANEH, SHEKEL, GERAH, BEKAH; CARAT Weights; KARAT Purity; TROY Weights; METRIC Weights; MILLESIMAL Fineness; FAR EAST Weights; 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).