Saturday, August 1, 2015

Nixon Takes the US Dollar Off the Gold Standard

In August 1971, 44 years ago this month, President Richard Nixon on national television announced the  "temporary" suspension of gold backing of the dollar.



  1. So the question is, did Nixon know what he was doing, or did he really believe that this would hurt the "international bankers"? In retrospect, he played right into their hands.

  2. Once again ... it's the "speculators" causing all the issues. But isn't that always the excuse?

  3. My understanding of the situation isn't as complicated as Nixon is pretending it to be: the fed/treasury was printing more reserve notes than they were allowed according to the gold reserve ratio agreed to at Breton Woods. In other words, the fed/treasury was counterfeiting reserve notes and exporting currency note inflation internationally, devaluing purchasing power of foreign holders of the USD.  The USG did this to pay for LBJ's great society and the Vietnam war, among other things.  Countries like France effectively said "fine, we'll exchange our reserve notes for gold, as per BW. the USG realized its gold reserves would be gone in no time, like an old fashioned bank run. So they dishonoured the agreement that made the USD the reserve currency, and Nixon sent Kissinger to the ME to create the petro dollar. Nixon's announcement was just face-saving window dressing. Everyone in the know knew it was pure BS.  Naturally Americans bought it completely and "speculator" became a four letter word in the U.S. after this speech. As graphic evidence of why governments hate gold and love fiat, look at a chart of US government spending take off coincident with the "closing of the gold window". In a word, exponential. 

  4. I think he felt his back was against the wall.

  5. Nixon gave this speech on a Sunday night, August 15, 1971. I had been water skiing all day. My friends and I were listening to head banger music on WRIF in Detroit sitting by the lake. Then Tommy Chong announced: “Hey man, it’s the president of the United States, man.” For about 3 minutes, I thought it was part of a comedy LP. My Marxist friends were all outraged because Nixon hadn’t frozen profits. None of this appeared to concern the Republicans of “The Greatest Generation”. I didn’t hear of Rothbard for another 17 months. I did understand at the time that Nixon was goosing the economy to get re-elected. It worked. As Hayek said, the indigestion comes later.

    1. Nixon directed Treasury Secretary Connally to suspend, with certain exceptions, the convertibility of the dollar into gold or other reserve assets, ordering the gold window to be closed such that foreign governments could no longer exchange their dollars for gold.

    2. Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government enacted wage and price controls since World War II.

    3. An import surcharge of 10 percent was set to ensure that American products would not be at a disadvantage because of the expected fluctuation in exchange rates.

    The American public felt the government was rescuing them from price gougers and from a foreign-caused exchange crisis. Politically, Nixon's actions were a great success. The Dow rose 33 points the next day, its biggest daily gain ever at that point, and the New York Times editorial read, "We unhesitatingly applaud the boldness with which the President has moved."

  6. OK, so it sounds like Nixon's hand was forced by the Fed's counterfeiting. Obviously the Fed has a long history of it. It's too bad that, after making this announcement, Nixon didn't send the Secret Service over to arrest them for counterfeiting.