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View Diary: When are we going to realize that we are no longer on the gold standard? (25 comments)

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  •  Nicely succinct and clear, but a question. (4+ / 0-)
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    whoknu, dorkenergy, Odysseus, hnichols

    I keep reading in contemporary blogs that Nixon took us off the gold standard in 1971, but my reading about the Depression (e.g., Kennedy's "Freedom from Fear") suggests that FDR did that in '33 or '34 and I've never heard that we went back on it after that.  I'm obviously missing something here.  Could you kindly tell me what?

    •  I am not an expert (8+ / 0-)

      but this seems like a decent link

      Roosevelt nationalized gold.  

      In 1933, with the cooperation of the U.S. Congress, Roosevelt made it illegal for Americans to possess gold coins or bullion. He then took away the right of Americans to be able to exchange paper money for gold. Finally, he confiscated all the privately held gold in the country by forcing people to trade it to the government for paper money at the rate of $20.67/ounce.

      Within a year, the U.S. government owned most of the gold in the country. Then, on January 31, 1934, Roosevelt used the authority given to him by Congress to unilaterally raise the price of gold to $35/ounce. Overnight, an ounce of gold that used to be worth $20.67 was now worth $35. Making this price change allowed Roosevelt to pull a fast one, a monetary scheme that, even by today's standards, was totally awesome. Here is how it worked.

      In 1933, the government was able to print $20.67 in paper money for each ounce of gold that it held. In 1934, the same ounce of gold could be used to support $35 in paper money, a difference of $14.33. In this way, the value of the gold held by the government increased by about $3 billion, which meant that Roosevelt was able to create $3 billion in brand new money out of nothing. He could then use the $3 billion to help fund his new programs. In doing so, Roosevelt put a huge amount of new money into circulation, which helped the economy to recover.

      He goes on to say that this devalued the currency relative to gold.  I would guess this is where the idea got started that our government devalues money whenever it prints more.  It is just another hangover that just isn't the case since we are no longer on the gold standard.  

      So basically, he made it so that you couldn't exchange dollars for gold anymore within the National economy, but the currency was still 'backed' by gold, since it was all in the government's vaults.  Nixon just ripped off the fig leaf in 1971.

      Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

      by whoknu on Fri Feb 01, 2013 at 10:57:52 PM PST

      [ Parent ]

      •  Nixon said he did it to prevent international (5+ / 0-)
        Recommended by:
        Odysseus, katiec, hnichols, whoknu, side pocket

        speculators messing with our currency. I don't think he imagined that Wall Street speculators would do just that.

        I happen to think that taking gold out of the system as a base of currency ultimately had the effect of forcing both the Soviety Union and South Africa to join the community of nations in regards to human rights because they could no longer count on their store of gold in the ground to finance their purchases on the world stage. Their political organization had to become credible, especially after the people in the U.S. started to call for boycotts of their economies.

        Nixon said (private communication) that it had not occurred to him. I don't doubt it. Who could expect it?  Besides, Republicans are wedded to the fiction that Ronald did it.

        The demise of the Soviety Union really brought hope to the segregationists. If the USSR could be dissolved, why not the USA?  Union is a dirty word to separatists and isolationists. Isolates want to remake the world in their own image. They're lonesome and they want everyone else to be lonesome, too. 51% of the adult US population is now single. You'd think that would make the isolationists happy. But, obsessives are never content.

        We organize governments to deliver services and prevent abuse.

        by hannah on Sat Feb 02, 2013 at 02:37:32 AM PST

        [ Parent ]

    •  Also see (1+ / 0-)
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      United We Understand — e MMT unum

      by dorkenergy on Sat Feb 02, 2013 at 09:23:16 AM PST

      [ Parent ]

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