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Wednesday, July 18th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

40 Years Ago Greenback Divorced Gold as Nixon Dropped the Bombshell


Some financial analysts have suggested that it is about time to get back to gold standard that was severed 40 years ago in mid-August 1971. John Tamny of Real Clear Markets while discussing with Jared Bernstein, the CNBC contributor on whether the United States should return back to gold standard observed that severing dollar links with gold was a monumental blunder and the biggest mistake of modern times. John further said that the decision of President Richard Nixon to sever the final link of the US dollar to gold was a devaluation of the dollar and history had shown that once money is devalued, investment becomes defensive.

President Richard Nixon addressed the US citizenry 40 years ago on the decision of the US not to honor the pledge to foreign governments to redeem US dollars for gold with immediate effect which was really a major setback to international monetary policy. This decision brought in the fiscal policy of paper based money currencies and floating exchange rates that have since dominated the world financial system. The announcement also ushered in a bull gold market. Gold at that time was selling for $40 per troy ounce which seemed to be a ridiculously low price.

Many money managers and economists like Lacy Hunt who was a senior financial economist when Mr Nixon made the announcement but now an Austin-based money manager referred to that announcement as a watershed event.  This announcement by President Nixon marked the death of the then existing global fiscal system that was set up towards the end of the Second World War where the US had agreed to the terms reached in 1944 at Bretton Woods in New Hampshire that it would redeem dollars for gold bullion at the rate of $35 per ounce for the central banks of other nations while these foreign countries used the dollar as the benchmark for their national currencies.

This monetary system in operation since the agreement of 1944 worked well until about the middle of 1960s when the United States pumped too many dollars into the world financial system in order to finance Vietnam War as well as its domestic social welfare programs and the eventual severance from the agreement in 1971.


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