On this day, August 15th, 40 years ago, President Nixon announced the end of the Gold Standard and the end of the Bretton Woods international monetary system (see video of Nixon’s dramatic announcement here).
“This was one of the most important decisions in modern financial, economic and monetary history and is a seminal moment in the creation of the global debt crisis confronting the U.S., Europe and the world today.
Subsequent to Nixon’s decision 40 years ago, the U.S. dollar has fallen from 1/35th of an ounce of gold to 1/1750th of an ounce of gold today. This is not the fault of “speculators”, rather it is the fault of profligate governments and central bankers debasing the U.S. dollar since 1971 (except for Federal Reserve Chairman Paul Volcker). (hat tip www.goldcore.com)
In other words, while your government has sold you a bill of goods that the Unites States has gone through a boom of wealth creation, the question you should be asking yourself is relative to what? Its true that a dollar invested in Dow Jones is worth far more today then in 1971 but relative to gold you are worse off. Take a look at the chart below. In 1971 the Dow/Gold ratio was 20. during the internet boom it briefly spiked to 40 and you certainly had you cashed out would have won; but like a fart in the wind, that moment was fleeting and only a few caught a whiff and unfortunately in today terms, the ratio is 6.5. THAT IS A 66% RELATIVE UNDERPEFORMANCE. Not only have you lost in such and EPIC MANNER but you don’t even realize it because mainstream media has trained you like Pavlovian Dog that Gold has no value, its not a form of money and it serves no purpose. Well guess what? While you certainly can’t eat gold as the naysayers will lament, you can’t eat federal reserve notes either.
Gold has long served as money because it has all five characteristics. But gold substitutes have become popular: bank notes, letters of credit, credit cards, and Federal Reserve Notes.
Money is the most marketable commodity. A marketable commodity has five characteristics:
High value in relation to weight/volume
Today, U.S. dollars and all paper and digital money is declared by governments to be legal tender, despite the fact that it has no intrinsic value and is not backed by gold reserves.
Historically, currencies were based on precious metals such as gold or silver, but fiat money is based on faith and on the performance of politicians, bankers and central bankers.
Because today’s fiat money is not linked to physical reserves of gold and silver, it is becoming worth less with each passing month and risks becoming worthless should hyperinflation take hold.
If people lose faith in a nation’s paper currency, the money will no longer hold value.
Throughout history most fiat currencies have not survived more than a few decades and have succumbed to hyperinflation.
The fiat currency or paper and digital based international monetary system has survived 40 years but is in terminal decline with many astute commentators now questioning whether it will survive the global debt crisis.
Gold’s role as a store of value and important monetary asset is being increasingly appreciated. Indeed, there are increasing calls for gold to again play a role in the global monetary system.
ANYWAYS JUST WANTED TO SAY HAPPY ANNIVERSARY. 40yrs of tyrannical rule by worthless paper FIAT CURRENCY is quite remarkable, what happens in the next 40yrs will be quite remarkable to watch. Hopefully and I mean this sincerely, you won’t be one of the few unlucky souls stuck holding worthless Federal Reserve Notes when we get there….