THE WORLD CHANGED

39 years ago ( Jack Benny's age) the world changed maybe irrevocably.

It is important to know what changed in 1971 and how that event relates to our present "situation": a shifting manufacturing base to foreign soils, indebtedness, rising unemployment, poverty and malaise.

President Nixon, at the urgings of Professor Friedman, took us off the Gold Standard,

i.e. the dollar was no longer backed by our treasury of gold. You could no longer present a dollar to the U.S. Treasury and receive 1/35 oz of gold, as the official redemption price was $35/oz.

The proclamation at the time didn't ruffle many feathers, since it was common knowledge that there was a hoard of dollars in foreign hands that if presented for payment would overwhelm our remaining gold supply .The 1945 Bretton Woods agreement made the U.S. dollar the world's currency and medium of exchange and

acceptable for payment of bills and debts, since it was considered to be " good as gold" and freely exchangeable.

The fact is that with the gold standard little gold actually changed hands as payment. If a country sold you coffee and you sold them bicycles, only the difference in cost/price was settled in gold.

After the 1971 proclamation,the USA was under no obligation to surrender their gold,

so their was no barrier to increasing the $ supply. Katie bar the door!

REF:"The Gold Standard: Generator & Protector of Jobs" by Hugo Salinas Price

www,plata.com.mx June 16, 2010

"The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years;. . The world's financial press, in which leading economists and analysts publish their work, never examines the relationship between the abandonment of the gold standard and unemployment, de-industrialization, and the huge chronic export deficits of the Western world powers;. . .t is an act of self-censorship to avoid incurring the displeasure of the important financial and geopolitical interests that are behind the financial press

From the end of World War II through the 1960s, all well-governed nations in the world sought to maintain a constant balance between their exports and imports. They all wanted to maintain a situation where they exported more than they imported, so that they could accumulate growing Treasury reserves of gold . . The exception to the rule was none other than the US. All well-governed countries sought to export more than they imported, except the US.

The US was not overly concerned with maintaining a balance between exports and imports, because - according to Bretton Woods - the US could pay its export deficits by the simple expedient of sending more dollars to pay its creditors. As the sole source of dollars, the US had a clear advantage over the rest of the world; they could pay their debts in (redeemable) dollars that they themselves printed...

Economists of the day warned of the danger of this practice, which resulted in a constant loss of American gold. From over 20,000 tons at the end of World War II, US gold reserves dropped year by year as certain countries, notably France, insisted on redeeming their dollars for gold at a rate of 35 dollars per ounce of gold. France incurred intense displeasure in Washington and New York due to its demands for gold in exchange for dollars; some analysts attribute the unrest in France in the spring of 1968 to covert operations by the US intelligence services, in a show of America's disapproval of the behavior of France, led at the time by General Charles de Gaulle.

The US did nothing to slow the loss of gold. In the early months of 1971, Henry Hazlitt, a solid classical economist, predicted that the dollar would have to be devalued; he said it would be necessary to increase the number of dollars that would be needed to obtain an ounce of gold from the United States Treasury. Only months after his warning, the dam burst, and in August 1971 the US was forced to devalue its currency, because the amount of gold in its reserves had fallen to a dangerous level. (Today, many doubt that the US has the 8,000 tons of gold it claims to have in its vaults at Fort Knox and the US Military Academy at West Point, N.Y.). . .

Since then[1971], all world trade - or most of it, as the euro, the pound sterling, and to a lesser extent the yen all compete with the dollar - is conducted using dollars that are nothing more than fiat money, fake money. Because all the world's other currencies were bound to gold through the dollar, the immediate consequence was that simultaneously they also became fiat money, fake money with no backing.

The consequences of that fateful day have overthrown all order and harmony in economic relations among the nations of the world, while facilitating and expediting the global expansion of credit because part of the dollars exported by the US ended up in the reserves of Central Banks around the world.

Countries began to accumulate dollars as the expansion of credit in the US advanced inexorably, now free of the restraint formerly imposed by Bretton Woods. The rest of the world was forced to accumulate dollars in reserves, because having insufficient dollar reserves, or having reserves that did not grow, or worse, having falling reserves, was a clear sign for monetary speculators to attack a country's currency and destroy it with devaluation.

As the loss of gold ceased to be a limiting factor, the last restrictions on the expansion of credit were stripped away. A heavy flow of dollars to all parts of the world spurred the expansion of global credit, which did not stop until 2007. The international banking elite always strive to obtain greater profits and to that end always seek to expand credit. Starting in 1971, freed of the restraint of being required to pay international accounts in gold, or with dollars redeemable for gold, the constant unfettered creation of credit and still more credit ensued. It was boom time in the US.

The US, which paid the rest of the world with its own irredeemable dollars of no intrinsic value, lauded the adoption of "free trade" and "globalization". The US could buy whatever it wanted, anywhere in the world, in any quantity, and at any price. Starting in the 1990s, its export deficits became alarming, but nothing was done to reduce them; on the contrary, they grew year by year.. .

Down with import tariffs! Free trade with the world! The new vision offered the enthralling, seductive picture of a globalized world without borders, where everyone could buy and sell where they liked, with no limits. The 90's were years of unbridled optimism for globalization!

Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but… there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold. When the doctrines of "Free Trade" and the "Comparative Advantages of Nations" were developed, the economists of the day could not imagine a world that did not use gold, but instead relied on a fiat money that could be created at will by a single country.

The "globalization" of the 1980s and 1990s and to date is based on the ideas of "Free Trade". However, in the absence of the gold standard that existed when the doctrine was conceived, "globalization" had completely destructive results, which have caused the de-industrialization of the West and the rise to power of Asia.

In the decades prior to 2007 a massive fleet of cargo ships was created, which sailed for the US and Europe - the West in general, Mexico included - bearing all kinds of inexpensive, quality products made in Asia. The flood was so great that local factories in the Western World were forced to move to Asia, to employ cheaper labor and continue to sell their products in the West.

. . .how many industries, large and small, have ceased to exist in the US and the West in general, because Chinese competition killed them.[?] . . how hard it is to find a product that can be produced at a profit in the developed countries.[?] It is very difficult to find a niche for any product to be manufactured locally. The flight of factories to Asia to take advantage of lower wages caused unemployment where local factories were closed. For the same reason job creation is slow or non-existent.. .

These evils appeared because gold was eliminated as a) a constraint on the expansion of credit and the creation of money, and b) the only form of payment of international debt.

Under the gold standard all players in international trade knew that it was only possible to sell to a country that sold something else in turn. It was not possible to buy from a country that did not buy in turn. Trade was naturally balanced by this restriction. The "structural imbalances" so commonplace today were unheard of.

The gold standard imposed order and harmony. If President Nixon had not "closed the gold window" in 1971, the world would be radically different today. China would have taken a century or more to reach its present level. China could not buy much from the US, because it was poor; therefore, China could not sell much to the US.

All this changed radically with the abolition of the gold standard.

Everything changed because the United States, having removed gold from the world monetary system, could "pay" everything in dollars, and without the gold standard as a limiting institution, it could print dollars ad libitum - without limit. Thus, in the 1970s the United States started to buy huge amounts of high quality products from Japan, while the Japanese boasted: "Japan sells; Japan does not buy." A situation that was impossible under the gold standard became perfectly possible under the fiat dollar standard. The Japanese became gigantic producers, their country an island transformed into a factory. Japan accumulated vast reserves of dollars sent from the US in exchange for Japanese products. This in turn triggered the de-industrialization of the US.. . .

After 1971, the US embarked on a protracted, large-scale expansion of credit. As the nation was de-industrialized and high-paying jobs in industry disappeared, a lack of disposable income for the population was replaced with easy and cheap credit, to conceal the stagnation in per capita income. Consumer credit drove imports from Asia and furthered de-industrialization even more. The great expansion of American credit was made possible because the gold standard, which restrained the expansion of credit by the banking system, had been abandoned. It is no coincidence that some analysts have observed that in real terms, American workers have had no real increase in their income since 1970.

All mainstream economists consider the elimination of the gold standard perfectly acceptable. They still do not see, or do not want to see, that the "Law of Unforeseen Consequences" is at work: the enormous advantage the US gained by being able to pay unlimited amounts in irredeemable dollars has become the fatal cause of the industrial destruction of the US - and of the West in general. A Mexican saying applies: en el pecado llevas la penitencia - "sin brings with it its own punishment".

Today the situation is far worse. China, with a population of 1.3 billion, has become a formidable power. No one can compete with China in price. China sells vast quantities of goods to the rest of the world, without the rest of the world having any chance of selling similar quantities to China, and China can do so, because today trade deficits are "paid" not in gold, but in dollars or euros or pounds sterling or yen, which will never be scarce: they are created at will by the USA, the European Central Bank, the Bank of England, or the Bank of Japan.

A fearful monster has been created as a consequence of the elimination of the gold standard, which imposed a limit: "You can only sell to those who sell to you; you can only buy from those who buy from you." This limit no longer applies; everything is disarray, inequality, imbalance; "structural imbalance" prevails because we no longer have the gold standard.

The credit expansion boom has ended, and in its place we have a global financial crisis. Today the problem of "structural imbalance" and the de-industrialization and unemployment it has produced in formerly industrialized countries acquires greater relevance with every passing day. What is to be done with the masses of jobless men and women? No one knows the answer, because the answer is not acceptable to the thinkers of today: the correction of "structural imbalances" and re-industrialization, in other words the creation of new jobs, lies in restoring the gold standard worldwide.

The "globalization" so highly praised by the financial press in recent years, has become the worst imaginable nightmare. It is no longer possible to support the unemployed with government handouts. The Sovereign State is close to bankruptcy. Thus, nature takes its revenge on those who dared violate its laws by seeking to impose false money on the world.

How did we stray so far from our heritage? Something for nothing, easy credit, no money down,buy now, pay later. Credit first seduced us, then it killed and buried us.

With Love and Kindness,

THE HATMAN