It was 40 years ago today...

On August 15, 1971, President Nixon went on television to announce 3 dramatic changes in economic policy.

He imposed a wage-price freeze. He ended the Bretton Woods international monetary system. And he imposed a temporary surcharge (tariff) on all imports.

The Bretton Woods system was created towards the end of World War II and involved fixed exchange rates with the U.S. dollar as the key currency - but also a role for gold linked to the dollar at $35/ounce.

The system began to falter in the 1960s because of an excess of dollars flowing out of the U.S. which foreign central banks had to absorb. A run on gold in 1968 was stemmed by a patch on Bretton Woods known as the two-tier gold system.

All of this was ended unilaterally 40 years ago today by Nixon.

The end of the Gold Standard and the end of the Bretton Woods international monetary system 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.

Nixon ushered in an era of floating fiat currencies not backed by gold but rather deriving value through government “fiat”.

An editorial in the UK newspaper, The Telegraph, describes the action as a seminal moment, and one we're now all paying for.

==================

Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.