- The End of The Gold Standard
Not so long ago, investing in precious metals was common place. Everyone invested in precious metals. Whether by choice or circumstance precious metals have been used througout history as a means to conduct trade and as a store of wealth for when it would be needed again in the future. This is fairly common knowledge to most people I am sure, but what I fear most people may not be aware of is that people physically owned gold or had easy acces to gold up until just a few decades ago.
In 1971, President Richard Nixon took America off the gold standard in where individual dollars were fully backed by the gold held in the treasury. When this took place he affectively took the entire world monetary supply and unpegged it from something tangible, Gold. The reason why it affected the entire world was due to a prior agreement called the Bretton Woods agreement. This stated in short that all national currencies would be pegged to the dollar and use the dollar as the international form of exchange. It also stated that the dollar would be redeemable in gold at a price of $35 per ounces troy. Without this system in place the dollar was able to move much more freely as did the rest of the world's currencies allowing investors and Wall Street to make much larger gains and also much larger losses than ever before. This also allowed governments of the world to practice what is known as "deficit spending." Defict spending is in effect a means where the government prints money into existance to get programs and public works completed that would not be able to be covered by annual tax revenues hence the deficit. So basically the the government says here is what we project to collect through taxes however in order to fund all our liabilites (ie. government payrolls, public works, bailouts,) we are going to need more than we will make in order to pay everything so lets take a loan from the federal reserve bank to pay for them. This has been going on and on and actually started prior to 1971. The reason why Nixon actually took us off the gold standard initially is because the cost of the Vietnam war was so great that they printed more money than could be backed by the gold reserves the U.S. held. If the public ever knew this and had a gold run ever took place the U.S. government would have defaulted on their reserve deposit notes. In the televised press statement that Nixon made he actually states that it was not intended to be an indeffinate action which I find kind of interesting in itself.
Watch the video here:
