Abandoned Gold Standard Guarantees Inflation
by Bill Haynes
In recent weeks, as prices have surged higher, "revived" inflation has become the topic du jour among establishment writers. Unfortunately, these writers point to the usual suspects, i.e. higher energy costs, higher interest rates, etc. In fact, the cause of inflation is the
The
Under the gold exchange standard, governments could hold U.S. dollars and British sterling as reserves because those currencies were "exchangeable for gold." The move to the gold exchange standard became official with the adoption of the 1944 Bretton Woods Agreement. When Nixon closed the gold window, those nations counting paper dollars as reserves found themselves holding paper instead of gold.
Although in 1974 President Gerald Ford signed legislation that permitted Americans again to own gold bullion, that legislation did not put the
Under the gold standard, a government is limited – both legally and practically – as to how much paper money it can print. As recently as the Lyndon Johnson administration, the
Under the gold standard, governments that print too much paper money risk runs on their gold reserves. Runs occur as holders of the paper seek to convert to gold before the vaults are empty. A run on the dollar is what happened in the late 1960s, which culminated in President Richard Nixon closing the gold window in 1971.
"Closing the gold window" is a euphemism for the
In the 34 years before Nixon closed the gold window, the money supply in the
Despite establishment assertions that the dollar is "sound," investors should prepare for further declines in the value of the dollar and plan their investments accordingly. History shows that no government, after going on a fiat monetary system, ever reverses course until its paper currency is destroyed. There is no reason to believe this time will be any different.
Bill Haynes [send him mail] has been a precious metals dealer since 1973. Bill starts his day reading lewrockwell.com’s selected articles. His website can be seen at www.cmi-gold-silver.com.
Copyright © 2005 LewRockwell.com
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