Federal Reserve Gold

Gold vs. The Fed in 1970’s

Posted on

There were no worldwide financial crises of major magnitude during the Bretton Woods era (1947 to 1971), proving that Gold and Free Markets are a more efficient regulator of monetary policy than the Federal Reserve.

When it last met, the FOMC signaled its desire to increase the rate of inflation by providing additional monetary stimulus. This policy is based on a false and dangerous premise – that manipulating the dollar’s buying power will lead to higher employment and economic growth. But empirical experience of the past 40 years points to the opposite conclusion.

Guaranteeing a stable value for the dollar by restoring dollar-gold convertibility would be the surest way for the FED to achieve its dual mandate of maximum employment and price stability. For the 20 years (1947 to 1967) under dollar-gold convertibility, unemployment averaged only 4.7% and never rose above 7%, while real growth averaged 4% a year.

Low unemployment and high growth coincided with low inflation, which averaged only 1.9% while interest rates were low and stable. However, since 1971 when President Nixon introduced Socialist Price Controls and formally broke the link between the dollar and gold, the USA has suffered higher unemployment (averaging 6.2%, more than 1.5 percentage points above the 1947-67 average) and lower real growth rates (averaging less than 3%).

In addition, we have since experienced the three worst recessions since the end of World War II, with the unemployment rate averaging 8.5% in 1975, 9.7% in 1982, and above 9.8% for the past 2 years.

During these 39 years of Government and FED manipulation, the consumer-price index rose, on average, 4.4% a year. That means that a dollar today is only worth about 1/6th of what it was worth in 1971.

Interest rates, too, have been high and unstable with Treasuries averaging more than 8% and hitting a high in 1980 of 21% and until 2003, never falling below 6%. This is symptomatic of the monetary uncertainty that has reduced the economy’s ability to recover from both external and internal shocks and led directly to one financial crisis after another.

The world suffered no fewer than 10 major financial crises, beginning with the Oil Crisis of 1973 and culminating in the Financial Crisis of 2008-09, and now the Sovereign Debt Crisis and potential Currency Wars of 2010-11, and a MUNI Bond crisis looming for 2011.

At the center of each of these crises were gyrating currency values – as the dollar’s value gyrates, it produces windfall profits and losses destroying the Capitalist System by interfering with the life blood signals given off by Supply and Demand. Thus, it never achieves the false promises that a floating dollar would make American labor more competitive and improve the nation’s trade balances.

In 1967, one Dollar could buy the equivalent of 2.4 Euros and 362 Yen. Over the succeeding 42 years, the Dollar has been devalued by 72% against the Euro and 75% against the Yen. Yet net exports have fallen from surpluses up until 1967 to a $450 billion deficit today.

The FOMC, like their predecessors, after 42 years still do not know what it is that needs to be done. By keeping the federal-funds rate near zero for almost two years, small businesses still cannot get loans and seniors not only suffer from the loss of safe retirement income due to artificially low interest rates, but they’re now advocating higher inflation at a time when their measures of inflation have completely broken down and are distrusted by everybody, both Foreign and Domestic, in the fallacious hopes of spurring economic growth and creating jobs.

Economists may disagree on why the Gold Standard (Capitalism) delivered such superior results compared to the recurrent instability and overall inferior economic performance delivered by the current system (Socialism), but the data is clear. A Gold-based Capitalist System delivers higher employment and more price stability.

The time has come to begin the serious work of reversing our accelerating march towards European style Socialism and move back as quickly as possible to a Gold backed Capitalist system for the benefit of America and the World.

The Communist’s desire for worldwide domination through an appointed UN, has been succeeding slowly but surely over the last 65 years, by first constantly changing their names from Progressives to Democrats, to Liberals (Socialists) and now back again to Progressives. This is an ongoing attempt to fool the electorate as to what and who they really are and blame their failures on Capitalism.

Their political success really blossomed when the Socialists succeeded in taking over control of our education system so that even so called Conservative Economists were brought up on text books written by Socialists. (I was brought up on Samuelson and Keynes, but fortunately for me I could not get into Princeton or Harvard because their Jewish quota was full).

They have succeeded to the point that, with the backing of a Liberal Press and Media, they are now blaming the debacle that we are now in on greedy banks, investors and businesses under the Capitalist system, feeding speculation and poor judgment. In truth the two housing bubbles were fed totally by 40 years of government interference with the workings of Capitalism.

Not knowing what else to do beginning in 2001, individual investors started accumulating Gold, while both the governments and their bankers were dumping Gold in an effort to hold down its rise. But today, most country’s central bankers are now piling back into Gold in hopes of finding a safe haven, while trying to get out of Fiat Currency, especially Euros and US Dollars (while trying their best to avoid crashing the dollar.

This is a common sense response to the FOMC’s intention to decrease the buying power of the Dollar and destroy our savings.

Add a comment

Leave a Reply


Random Articles

Trading and Emotions
by Sue Clark - Apr 01 | in Psychology
Candlestick Patterns Basics for Beginner Trader
by Kenny C. - Mar 31 | in Technical, Candlestick
Forex Money Managements
by William R. - Mar 30 | in M. Management
Commodities Trading
by Joana N. - Mar 29 | in Economic, Investing
The Most Traded Forex pairs
by Lilian W. - Mar 28 | in Beginner