The 50th Anniversary of Nixon’s Colossal Error
The comments below are an edited and abridged synopsis of an article by Richard Mills
It seems fitting that the year we are expecting to see an unprecedented rise in US government spending and money-printing to spur an economic recovery marks the 50th anniversary of the end of the gold standard. We are still feeling the effects of this disastrous decision five decades on.
Mills explains why President Nixon did what he did, and why every promise that unshackling the US government from the requirement of maintaining the dollar’s value in terms of gold would mean for the US has been broken.
“The evidence is in. The great experiment of a paper dollar managed by able men and women has failed and failed miserably to keep any of its promises.”
Nixon was persuaded to try beating inflation in 1971 by imposing wage and price controls. He did this to get re-elected, but Nixon went further in removing the fixed link between the dollar and gold.
The move killed the dollar, which has been losing value ever since. Successive governments and central banks have been creating money (the Fed) and spending money (the Treasury) with no consequences, something that could never happen if the dollar had a gold anchor. Monetary/fiscal policy would have been restricted, but the federal government would not have been able to run up the debt to its current $28 trillion, exceeding the debt-to-GDP ratio by 100% in the fall of 2020.
There would also be no unfettered growth of the money supply, which is inflationary, and no expansion of the Fed’s balance sheet to over $7 trillion.
Nixon’s historic decoupling of gold and the dollar has important ramifications for the US economy and investors.
What happens when people realize the government has depreciated the dollar by spending $6.5 trillion using borrowed money, plus the Fed’s $7 trillion, meaning the purchasing power of the dollar has been halved? The equivalent of half the $28-trillion national debt? And with trillions more debt to come, there is only one direction for the dollar, and only one direction for gold.