The US Dollar Standard on its 40th Year

Known as the Nixon shock, the US dollar-Gold convertibility was closed in August 15, 1971, that’s 40 years ago.

How this came about, Cato’s Dan Griswold explains, (bold highlights mine)

In a surprise televised speech on Sunday evening, August 15, 1971, the president announced that he would immediately impose wage and price controls, slap a 10 percent duty on imports, and suspend the international convertibility of the U.S. dollar into gold. All were to be temporary measures, of course, to promote jobs, dampen inflation, and combat “international money speculators” betting against the dollar. (You can read the entire speech here.)...

The centerpiece of the Nixon Shock was its controls on prices. In a market economy, freely fluctuating prices are the nervous system that coordinates supply and demand. Yet in one of the more chilling statements delivered by a U.S. president, Nixon told the nation that evening,

“I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days.

The price controls did tame inflation temporarily, but it came roaring back within three years to double-digit levels and persisted through the 1970s because of loose monetary policy. A tight lid on a boiling tea pot can only contain the steam for a time before it explodes.

The controls continued on gasoline, causing artificial shortages (as price controls usually do) symbolized by gas lines during the 1970s. Only when President Reagan finally lifted the controls on oil and gasoline in 1981 did the specter of short supplies finally disappear. (The 10 percent import surcharge did prove to be temporary, lasting only until the end of 1971.)

Closing the gold window was arguably inevitable given the lack of monetary discipline by the U.S. central bank. By 1976, the dollar and other major currencies were floating freely, which has turned out to work rather well, as Milton Friedman predicted it would. It also turned out that pressure on the dollar to depreciate was not driven by speculators after all but by the surplus of dollars that had been created to finance the Vietnam War and the Great Society.

The lessons:

One lesson of the Nixon shock is that if politicians are granted “emergency powers” they will tend to abuse them in situations that were never envisioned when the powers were originally granted. A second lesson is that “temporary” measures have a habit of becoming permanent. The big lesson is that the power of politicians over the economy should be limited. Any request for temporary emergency powers should be greeted with the deepest skepticism.

Of course there is another more important lesson: 40 years ago TODAY, ONE US dollar is now only worth 18 cents of buying power.

From the BLS

82 cents of every dollar accounts for how much worth of resources that has been surreptitiously and illicitly transferred from her citizenry to the US government and their cronies. This represents 40 years of mass deprivation, deception and delusion.

And to consider, the CPI inflation may have even been grossly underestimated as the method to compute this has changed over the years or as argued by John Williams of the Shadow Statistics via substitution, hedonic regression and etc… here

Henry Ford was right when he said

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

It’s been 40 years of infamy.