On Sunday evening, August 15, 1971, President Nixon told the American people the U. S. would ‘suspend temporarily the convertibility of the dollar into gold or other reserve assets’ as a means of defending the dollar against ‘the speculators.’ This was one part of his New Economic Policy, a phrase borrowed from communist Vladimir Lenin, which included a 90-day freeze on prices and wages, and a 10 percent tax on imports. Gary North points out that Barron’s editor Robert Bleiberg, in a 1974 speech at Hillsdale College, thought the price-wage freeze was perhaps a ploy to distract attention from the ‘unthinkable’ act of severing the dollar’s last connection to gold.
As North notes, the voters knew nothing about gold and most economists, with their Keynesian pedigree, approved of Nixon’s action. It wasn’t a high-risk move on Nixon’s part.
Of course, the promised dollar stability resulted instead in a decade of unemployment and inflation. According to the BLS, the price level today is six times higher than it was when Nixon slit our monetary throats on a long-ago midsummer night. Inflation and unemployment began to abate only after President Carter appointed Paul Volcker as Fed chairman in July, 1979. At a press conference on July 25,
Volcker spoke of price stability. To his way of thinking, the only way to get price stability was to drive up interest rates to the point where the economy stalled, to where people no longer wanted to buy. [Paul Volcker, The Making of a Financial Legend, p.64]
This post was published at GoldSeek on Tuesday, 15 August 2017.