The Consequences of Abandoning the Gold Standard: A Critical Analysis

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Source Article: NESARA/GESARA – The Progress Report

Key Actions by the Federal Reserve and U.S. Government

Abandonment of the Gold Standard (1933)

In 1933, the United States took a significant step towards inflation by temporarily moving off the gold standard. President Franklin D. Roosevelt suspended the gold standard, which had previously constrained the Federal Reserve's ability to increase the money supply, as the dollar was pegged to a fixed amount of gold. By abandoning this standard, the Federal Reserve gained the capacity to print more money, effectively inducing inflation.

Executive Order 6102 (1933)

Roosevelt issued Executive Order 6102, which mandated that U.S. citizens exchange their gold coins, gold bullion, and gold certificates for U.S. dollars. This measure aimed to prevent gold hoarding and increase the Federal Reserve's gold reserves, thereby giving it more leverage to expand the money supply. This action rendered American citizens economically dependent on a private corporation for currency, with the Federal Reserve controlling the money supply and accumulating gold while issuing debt-backed currency.

Devaluation of the Dollar

The Gold Reserve Act of 1934 officially devalued the dollar from $20.67 to $35 per ounce of gold. This devaluation was intended to increase the price of goods, making American products cheaper for foreign buyers and boosting exports. It also effectively increased the money supply in terms of gold-backed securities, now controlled by the Federal Reserve's debt markets.

Open Market Operations and Interest Rate Reductions

The Federal Reserve engaged in open market operations by purchasing government securities, thereby increasing the banking system’s reserves and the overall money supply. Additionally, lowering interest rates made borrowing cheaper, encouraging spending and speculation—phenomena only possible in fiat currency systems, often misnamed as "investment."

Public Works and Government Spending

Monetary policy was complemented by fiscal policy, with the government increasing its spending on public works and social welfare programs under the New Deal. These actions created jobs and increased cash flow in the economy, contributing to inflationary pressure. The Federal Reserve, facing a natural demise in 1933, was saved by legislative support, converting American citizens into debt dependents.

Impact of These Actions

These steps were part of a broader strategy to counteract the deflation that had worsened the economic downturn. By inducing mild inflation, the government and the Federal Reserve aimed to reduce the real burden of debt and stimulate economic growth by promoting spending and speculation. However, this strategy has faltered, as the burgeoning debt has consumed the purchasing value of the Federal Reserve's currency.

Closing of the Gold Window (1971)

Reasons:

1. Balance of Payments Deficits: Persistent deficits due to high government spending, especially during the Vietnam War, led to significant outflows of gold reserves.
2. Foreign Demand for Gold: Decreased U.S. gold reserves caused other countries to lose confidence in the dollar, demanding gold in exchange for their dollars.
3. Dollar Overvaluation: The fixed exchange rate under the Bretton Woods system overvalued the dollar, making the official rate of $35 per ounce unsustainable.
4. Speculative Attacks: Financial markets speculated against the dollar, exacerbating the gold outflow.

Effects:

1. End of Bretton Woods System: Nixon’s announcement ended the Bretton Woods system, leading to floating exchange rates and massive speculative currency markets.
2. Currency Volatility: The removal of gold backing increased currency market volatility, with exchange rates now fluctuating freely.
3. Inflation: Increased inflation in the U.S. followed, as the dollar's value was no longer anchored by gold.

Creation of the Petrodollar System

Reasons:

1. Need for Stability: The dollar needed ongoing global demand post-1971 to maintain its value and status as the primary reserve currency.
2. Oil Market Leverage: The U.S. leveraged oil's critical role in the global economy to create demand for the dollar through oil transactions.

Mechanism:

Henry Kissinger negotiated with Saudi Arabia and other OPEC nations to price oil exclusively in U.S. dollars. In return, the U.S. offered military protection and security guarantees to these nations.

Effects:

1. Global Demand for the Dollar: The petrodollar system ensured continued global demand for the dollar, helping offset the potential negative impacts of abandoning the gold standard.
2. U.S. Economic Leverage: The system provided the U.S. with significant economic and geopolitical leverage.
3. Impact on Oil-Producing Countries: These nations accumulated large dollar reserves, which were often reinvested in U.S. assets, further integrating their economies with those of the U.S.

The End of the Federal Reserve System’s Fiat Currency

The Federal Reserve's fiat currency system is now facing significant challenges. High debt levels and reduced global confidence in the U.S. dollar are causing strains. There is speculation about a potential return to a gold-backed currency or a new monetary system. The consequences of past economic maneuvers continue to unfold, influencing global financial systems and political relationships.

Protecting Wealth with Gold

As the Federal Reserve's fiat currency system faces increasing instability, protecting wealth becomes paramount. Gold offers a stable store of value, providing a hedge against the collapse of the petrodollar. This is crucial for Canadian and U.S. citizens, as global economic shifts impact all economies. By incorporating gold into their portfolios, investors can enhance resilience and diversification.

For a complimentary portfolio evaluation to discuss how owning gold fits into your portfolio allocation, contact me at [email protected] or use my Calendly Link to book a meeting.

Alternatively, you can contact New World Precious Metals to discuss purchasing options for physical gold.

Ensuring that your portfolio is well-positioned to withstand economic challenges and market fluctuations is vital in these turbulent times.

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