“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.” – Atlas Shrugged
August 15, 1971. That date should be etched in everyone’s mind and it should be tattooed on the forehead of ass-absolutes like “Mish,” Prechter, Denninger and every other imbecilic deflationista out there. Here’s the chart, which I took from the free access to Nick Laird’s http://www.sharelynx.com/ and added the two date-markers:
This is the key to the understanding the root cause of the collapse of the United States – economically, politically, morally, spiritually.
The Bretton Woods agreement in 1944 established the U.S. dollar as the world reserve currency. The proviso was that all U.S. debt obligations were to be backed 1:1 with the gold owned by the United States. While this was only a partial currency anchor, you can see that from 1944 – 1971, the amount of Treasury debt outstanding barely increased.
Then, on August 15, 1971, all hell breaks loose. The terms of BW allowed foreign sovereign holders of U.S. debt to exchange that paper for gold at the Fed “window.” The U.S., in order to pay for the largesse of 8 years of Democratic socialist programs and Viet Nam, had issued a lot more paper to foreigners than was backed by gold in Ft. Knox. Charles deGaulle had figured this out and decided to turn in all of the U.S. debt held by France in exchange for gold. Nixon had no choice but to close the gold window or risk an unmanageable political and economic crisis: it prevented a run on gold that U.S. did not have. Wars are started over issues like this.
For whatever reason for which I have yet to find a plausible explanation, the rest of the world accepted this U.S. Government default under Bretton Woods and continued to accept the U.S. dollar as the global reserve currency. The only thing I can think of is that at the time the U.S. was by far the strongest economy, had military presence in close to 200 countries and by far had the most nukes to fling.
Now, if I were to dig up a long-term chart of M3 thru March 2006 and extended it with M2 + assumptions thru today, you would see a similar chart pattern to the one in the Treasury debt chart above. Serious price inflation is percolating in the system and will soon be felt by everyone.
And now our system is mired in an irreversible debt/death spiral. At some point our Asian/Anglo financiers will say “NO MAS” and then we’ll really see the meaning of Bernanke’s infamous “helicopter” speech. The Fed will have no choice but to hyperinflate the money supply in order to fund the Government and keep our system from collapsing. I’m not sure where Bernanke is coming from, because for a supposedly educated PhD economics expert, he sure is ignorant. I guess the joke’s on us…
Richard Nixon and every subsequent President, Arthur Burns, G. William Miller, Paul Volker, Alan Greenspan and now Helicopter Ben Bernanke are ALL destroyers of money. Do you know where your gold is?