September 27, 2021

ASKING THE IMPORTANT QUESTIONS: What Happened in 1971? Edward Snowden and Jack Dorsey Want to Know.

Did you catch that last part? Though citizens couldn’t exchange paper money for gold, foreign governments could. So the US dollar was still tethered to gold, which the US promised to redeem at an exchange rate of $35 per ounce. This meant the US couldn’t inflate the money supply without depleting its gold reserves.

Unfortunately, however, the US did inflate its currency, in large part to finance the escalating costs of the Vietnam War and LBJ’s Great Society. This is one reason, Newman explains, that the US depleted roughly 55 percent of its gold stock from the 1950s to 1971.

In that year—1971—facing depleted gold reserves and a dollar facing increasing inflationary pressure from government expenses, Nixon made a critical decision: he “temporarily” paused gold redemption.

Nixon’s move was not temporary, however.

In her 2019 book, Great Society, Amity Shlaes wrote:

Nixon and Connally would now present a policy package containing most of or all their ideas, a package so sudden and revolutionary, like Nixon’s decision to go to China, that it outclassed either the New Frontier or the Great Society for sheer drama. Shultz and Connally got in the spirit. “I think it’s the biggest thing in economic policy since World War II,” Shultz concluded, accurately enough. Nixon had always known he could out-Kennedy Kennedy and out-Johnson Johnson, and now he was going to do it.

And we’ve all paid the price ever since. Exit quote: “Monetary policy may be confusing and some may find it dull—though I no longer do. But one thing is clear: it’s monumentally important.”

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