CrushTheStreet.com would like to commemorate this week the 40th anniversary of the day where America was fully torn away from a sound money gold standard. August 15, 1971, former President Nixon announced that America will be completely taken off the gold standard and not have to have a responsible fiscal government because now it will completely have a license to print. From 1934 to 1971, essentially between the years of Roosevelt and Nixon, gold was fixed at $35 per ounce. In 1933, Roosevelt saw fit to initiate the initial phases of taking the dollar off of the gold standard, something the United States was on since 1879. During this time of 1933, Roosevelt demanded that banks hold on to their gold and not exchange it for dollars. On April 5, 1933, Roosevelt confiscated all gold coins and all certificates of all denominations of more than $100 to be turned in for $20.67 per ounce paid by the Federal Reserve, essentially demonizing and making everyone who didn’t turn in their own property a criminal who didn’t comply. By 1934, the government reevaluated gold at a set price of $35 per ounce, effectively repricing the amount of gold in their vaults upwards by 69% thus allowing the government to further inflate their money supply.
The idea was that the more gold the Federal Reserve could get its hands on, the more money it could print. However, by reevaluating the dollar against gold, the fulfillment of the Keynesian gospel became manifested and it was a whole lot easier to print more money since now they could inflate the money supply to stimulate growth in the economy. Through credit expansion, fractional reserve banking, and an increase in money supply, the real dollars that were being backed by gold were dwindling and the government was not going to be able to make good on their payments of gold if a major run on the U.S. dollar took place. The shock to the world came on August 15, 1971, when Nixon addressed this issue and made redeeming dollars for gold a thing of the past for the United States.
The question is could similar events that happened in the 1930’s where government infringes upon the rights of its citizens and steals what is theirs. Well we’re seeing similar events abroad happening now in Venezuela. Mr. Chavez announced that he plans to nationalize the gold mines to boost the country’s international reserves with gold production. Mr. Chavez made a statement on national television saying that, “I have here the laws allowing the state to exploit gold and all related activities. That is to say, we’re going to nationalize the gold and we’re going to convert it among other things, into international reserves because gold continues to increase in value.” In addition to nationalizing the mines, Venezuela wants to transfer a significant amount of gold back into their own domestic vaults. Already, the Bank of England has received a request from the Venezuela government to transfer the 99 tons of its gold back to Venezuela.
The fraud in our government never ceases to amaze us and the extent of which they go to continue to prop up our phony economy seems to be limitless. This makes sense since our Federal Deficit is over 1 trillion for the 3rd year in a row which ironically, even after all those cuts, is still growing very fast. Isn’t it amazing how even with a credit downgrade we’ve actually seen our borrowing costs go down as we continue to go further into debt. In a typical scenario, a downgrade in an economy would cause immediate rises in interest rates and a slight panic for those who are invested into the country. The Fed seems to continue to think that they will be able to do whatever they want and that it is them who are in control of the rates being that they want to keep rates artificially low until 2013. Conventional wisdom says that the U.S. is positioned to do as we please and control rates because of the world’s perception of dependence on the U.S. Unconventional wisdom is foreseeing the decoupling of the world away from the U.S. There is no doubt that America is still extremely tied into the rest of the world and that what happens here is directly and indirectly tied to the rest of the world, however, we believe as time goes on there will be less and less bargaining power that the U.S. will have with the rest of the world.
The muck goes on… The creative juices of the Treasury Department, Federal Housing Finance Agency, and the Department of Housing and Urban Development on Wednesday mixed this past week to tackle the hundreds of thousands of foreclosures that are hitting the market that would absolutely decimate home prices in a “true” free market. The suggestion that was discussed was to not foreclose on the properties immediately, but rather have the owners pay rent. The goal for this would be to collect money of course and stabilize prices by not flooding the market with more foreclosures. The government trying to sell these homes in this rough market has not been successful and like in many other arenas, they are running out of options.
Moody’s analytics have downgraded their economic forecast for the U.S. economy after reaffirming its Triple-A recommendation. They only expect a 2% growth in GDP for the remainder of this year and only a 3% growth for next year, also stating that there’s a 1 in 3 chance that we will be back in a recession in the next 12 months. 48% of Americans believe that this country will be in a Great Depression within the next 12 months. Consumer confidence is at a 30 year low and we do not see a near term reversal in this trend with cost of living going up and the mess in government only making things worse.
It would be nice to report on the success of this nation and how we are on the verge of breaking through to new unprecedented territories of success that will be putting this country far ahead of others around us, but we feel that the opposite is true. The last decade has been one giant artificial stimulus package that is showing its ugly dark side to millions of Americans and individuals around the world. CrushTheStreet.com believes that having faith in the system and putting your trust in the government might leave you empty handed and out of luck. Stay informed and up to date.
“The dread of disaster makes everybody act in the very way that increases the disaster.” -Bertrand Russell
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