August 28, 2021
No matter what side of the political aisle you’re on, we can all agree that America’s finances are in shambles…
And while politicians engage in petty partisan finger-pointing about whose fault this is, our decimated middle class continues to struggle to survive.
This precarious economic situation we find ourselves in predates the pandemic, the Great Recession, and even the dot-com bubble… and we’ve got to get to the bottom of why our fiscal fabric has come undone.
Our economy is ill, and we need to run a biopsy on our monetary system to see what’s killing it.
We know the symptoms – crazed stock speculation, runaway inflation, and a dying dollar – but what’s the root causality?
On our recent American Consequences podcast, former Texas Congressman Dr. Ron Paul shared that he’s most worried now about the sheer irresponsibility of America’s money printing. He notes that this cruel pastime has wrecked our bedrock of sound money policies and threatens our very way of life.
When seeking the answers to our current economic woes, the 1970s will inevitably get your attention. Since the dawn of that decade, middle-class wages consistently failed to keep up with the rate of productivity. Now, the Left might claim that’s due to the dissolution of unions – but what if it’s something more primal? And what if it all began with one (among many) poor decision from Richard Nixon?
In August of ’71, with the Vietnam War raging and Watergate waiting in the wings, Nixon officially took the U.S. off the gold standard. And since we’ve let go of the shine of humanity’s most reliable form of money, our financial landscape has only gotten darker in the ensuing years.
The precipice of this maneuver came from the mid-60s agenda of then-Fed Chair William Martin to prioritize employment over inflation (sound familiar, Powell?). And so, for the next half-decade, money printing went full steam. International investors reached a point where they had three times the number of dollars our country could redeem in gold and had no faith in America’s capacity or desire to cover the spread.
To avoid a ransacked Fort Knox, Nixon declared the dollar divorced from gold. Now, at the time, Tricky Dick promised the measure would be temporary. Right…
Ever since, our currency has steadily lost value, year after year. Ron Paul notes that in total, the American dollar has lost 98% of its original worth.
As Ron Paul reminds us…
Money printing creates no new wealth but rather, economic distortion.
And in the 70s, after giving the dollar the slow kiss of death, the administration jumped off the Phillips curve – a begrudging trade-off between lower unemployment and higher inflation. They thought that they could live with the higher prices if it meant more Americans went back to work… But coupled with the Recession of the time, one of the most crippling economic sicknesses set in – stagflation. That’s the toxic pairing of soaring prices with no economic growth. And those conditions could return now…
The Haunting of Bretton Woods
I’ve written about the Bretton Woods Conference before – the pivotal post-WWII economic reset. When Nixon was still a young Navy Officer, the blueprint of the economy he would inherit had its origins at a posh estate in my home state of New Hampshire.
Officially named the United Nations Monetary and Financial Conference, it was here that the U.S. Treasury hosted hundreds of delegates and all the Allied nations in the summer of 1944 to decide the fate and future of the world’s financial system.
This meeting birthed the International Monetary Fund and two more crucial decisions: minting the U.S. dollar as the world’s reserve currency and establishing the gold standard.
We stopped the Third Reich, Europe was bombed-out and war-torn, and we had the gold. At the time, our country held over half of the world’s gold reserves.
So, we took the crown, as it were, from the crumbling U.K. Empire’s pound to ascend as the world’s currency pegged to history’s most precious metal.
What could go wrong?
We live in a country that can’t even keep track of its trillions.
But as Dr. Paul puts it, we had pseudo-wealth post-WWII, and the world trusted the dollar far more than it deserved. He believes Bretton Woods gave America a false sense of economic immunity, creating a power-drunk country that funneled its excesses to capitalize government overspending and the fattening of special interest groups.
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Declaration of Bankruptcy
But when I pressed Dr. Paul about the real reason that we’re in a mess today, he hits back at the core: the Fed. He thinks that the central bank’s inception in 1913 derailed capitalism for the next century and beyond, and bears responsibility for a bevy of bankrupt trends: stagnant wages, staggering productivity, the shrinking of the middle class, enriching Big Banks, and untold social fissures.
Dr. Paul goes so far as to say that we haven’t even had free enterprise since the Federal Reserve, with the rich getting richer and the poor getting… well, pissed off.
Jerome Powell and the rest of the Fed convene for their digital symposium this weekend to decide whether to pull back their monthly $120 billion bond buybacks.
Let’s hope they take note of America’s past economic summits and game-changing decisions to avoid repeating past mistakes and further endangering the lifeblood of America’s finances.
Meanwhile, you must focus on protecting your money and freedom by positioning your portfolio best in these volatile times, with diversification and a concerted focus on equities.
America can’t survive many more self-induced wounds… Otherwise, our monetary system could flatline, leaving China to run the post-mortem.
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Publisher, American Consequences
With Editorial Staff
August 28, 2021