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When the U.S. gave up gold

Wall Street Journal/Jeffrey E. Garten/7-1-2021

Ed Stein cartoon graphic of gold bar flying a dollar kiteUSAGOLD note 1: This informative look at the Nixon administration’s decision to sever the dollar’s link to gold fifty years ago (August 15,1971) tells how it “suspended the most fundamental rules of the international monetary system, affecting the prices of all products, commodities and services in world commerce.”

USAGOLD note 2: We have been fully immersed in that system ever since. Written by Jeffrey Garten, dean emeritus of the Yale School of Management, it tells the net effect of that decision on financial markets – including the most detrimental. “Once the dollar was detached from gold,” he writes, “new financial instruments arose to hedge the risks associated with exchange rate fluctuations. Options, swaps and derivatives grew into a vast casino-like industry. Making money on money too frequently became the preoccupation of Wall Street, replacing the financing of factories, infrastructure and technology.” In short, it not only launched the fiat money era but the era of financial engineering as well along with the ever-present dangers it provokes.

USAGOLD note 3: Garten does not delve into how the switch to the fiat monetary order affected gold itself in the ensuing one-half century. For that, we recommend the latest edition of our monthly newsletter (News & Views) headlined “Gold in the Age of Inflation.” It will fill in the blanks in the form of two highly informative charts and a short accompanying commentary. But first, we recommend reading Garten’s well conceived article. It lays some solid groundwork. The accompanying public comments are also worth a read.


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