In 1971, the United States significantly shifted its monetary policy by abandoning the gold standard. This decision, known as the “Nixon Shock,” was a turning point in the nation’s economic history and has had lasting effects on the global financial system.

The gold standard, which had been in place in various forms since the 19th century, tied the value of the US dollar to a specific amount of gold. This system ensured that the currency had a tangible backing, providing stability and confidence in its value. The Bretton Woods Agreement, established in 1944, further solidified the gold standard’s role in the international monetary system by pegging other currencies to the US dollar, which was convertible into gold.

By the late 1960s, however, the US faced mounting economic challenges. The costs of the Vietnam War and President Lyndon B. Johnson’s Great Society programs had led to significant budget deficits. The government was trying to spend money that it did not have. Additionally, other countries were beginning to question the stability of the US dollar and started redeeming their dollars for gold. This put immense pressure on the US gold reserves, which were rapidly dwindling.

In response to these pressures, President Richard Nixon announced on August 15, 1971, that the US would no longer convert dollars into gold. This decision effectively ended the Bretton Woods system. It marked the beginning of a new era of fiat currency, where the value of money is not tied to any physical commodity but is instead based on government decree.

The Consequences of Abandoning the Gold Standard

The transition to fiat currency had significant implications for the US and the global economy. Without the constraints of the gold standard, the US government gained greater flexibility in its monetary policy. This allowed for more aggressive measures to manage economic cycles, such as adjusting interest rates and controlling the money supply. This control allowed the government to spend money without having to back it up with physical gold. Gold no longer needed to be available for foreign entities that wanted to trade their dollars for gold. If the government needed money, they could create it out of thin air.

However, this newfound flexibility came with obvious problems. The absence of a tangible backing for the currency opened the door to fiscal irresponsibility. The US national debt began to soar, and the government increasingly relied on printing money to finance its expenditures. This led to a devaluation of the dollar and a loss of purchasing power for ordinary citizens. Since 1971, on average, prices have increased by approximately 632%. In other words, what cost $1 in 1971 would now cost around $7.32. Just since 2020, costs have increased by 22.8%. This is all based on the assumption that the Consumer Price Index is accurate. There are many reasons to believe that the percentages are incorrect based on biased ways of reporting price increases.

According to the Shadow Government Statistics (SGS) Alternate CPI, which uses methodologies from before the 1980s and 1990s changes to the official CPI calculation, the inflation rate would be significantly higher than the official CPI. While the official CPI might report an inflation rate of around 85-86% since 1971, the SGS Alternate CPI indicates that if inflation were calculated using the pre-1980 methodology, the cumulative inflation rate since 1971 would be around 1,000%. Regardless of the methodology, the point is this: the dollar has and continues to lose value rapidly.

Inflation became a persistent issue, eroding the value of savings and disproportionately affecting those with fixed incomes. The centralization of monetary control in the hands of policymakers, particularly the Federal Reserve, also concentrated economic power and introduced the risk of policy errors and market distortions.

A Call for Sound Money

The abandonment of the gold standard marked a significant departure from sound monetary principles. This move has led to fiscal irresponsibility, inflation, and the centralization of power. A return to a system of sound money, backed by tangible assets like gold or silver, would restore economic stability and safeguard individual freedoms in the face of an increasingly interventionist monetary policy.

Unfortunately, we cannot control what the government does with our money alone. However, we can implement the same principles that we want the government to implement. Instead of relying solely on Fiat currency, we can back our wealth by investing in gold and silver. The price of gold has increased by approximately 8,300% since 1971. This is why gold is the best way to avoid the adverse effects of inflation.

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Fiat currency, like the US dollar, is not backed by a physical asset like gold or silver. Instead, its value is derived from government regulation and the trust and confidence of the people. It is valuable because the government says that it is valuable. It is also the reason your grocery prices continue to increase.

The Nature of Fiat Currency

Fiat currency is created through a process called the “Mandrake Mechanism,” where money is created out of debt. When a loan is issued, new money is created, and the money disappears when the loan is repaid. This system creates a flexible money supply, but it introduces significant risks.

Effects on the Monetary System

The shift to fiat currency has fundamentally transformed the monetary system. Central banks, like the Federal Reserve, can control the money supply, which can be used to manage economic cycles. Central banks can increase the money supply during economic downturns to stimulate spending and investment. Conversely, they can reduce the money supply to curb inflation during rapid economic growth.

However, this flexibility comes with challenges. The absence of physical backing means that the value of fiat currency is highly dependent on the stability and economic policies of the issuing government. Any loss of confidence in the government’s ability to maintain economic stability can lead to currency devaluation and inflation.

Inflation and Fiat Currency

One of the most significant criticisms of fiat currency is its propensity to cause inflation. Since fiat money can be printed at will, its supply has no intrinsic limit. This can lead to an increase in the money supply without a corresponding increase in economic output, resulting in inflation. Inflation is a hidden tax, as it reduces the purchasing power of money. When new money is created, new value is not. That value has to come from somewhere, and that somewhere is the purchasing power of previously issued currency. Inflation is a tax because it takes value that the everyday person has earned and redistributes it, often without the person realizing it.

Historically, periods of high inflation have been associated with excessive money printing, such as during the 1970s. The Federal Reserve’s response to high inflation, including raising interest rates, has profoundly affected the economy.

Conclusion

The transition to a fiat currency system has given central banks incredible power to manipulate the economy and the value of money. This hidden tax is the real reason prices continue to increase. Given the potential for inflation and economic instability, it’s crucial to diversify your assets to safeguard your wealth and ensure its preservation over time. Don’t put all your eggs in the fiat basket; explore other investment options to protect yourself against the unpredictable nature of fiat currency. It is prudent to put a portion of your net worth into tangible, physical assets like gold and silver. Something that cannot be debased, cannot be inflated, and has been used as a store of value for thousands of years.

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Gold’s price rise reflects concerns that world bankers, international monetary authorities (and you and I) should know.  Everyone in the know understands this is unsustainable.  The populous is told everything is fine and just continue to put your trust in the central banks. 

Debt is very, very easy to create with fiat currency.  However, the more debt you make, the less valuable is the previous debt you created.  You can not randomly create gold.  It only inflates at about 1.8% per year.  World governments know this, hence their increased gold holdings.

Not only is debt growing but, of course, the interest due on that debt continues to grow. Tell me, is this sustainable?

Gold price will continue to rise and do very well for the balance of 2024 and into 2025.  We could see $3,000 this year and probably $3,500 to $4,000 next year.  Silver should ride its coattails and maybe outperform.

Finally, I know that the gold price seems high. I have been at this for 30 years. It has always seemed high, and it’s going higher. Dollar-cost averaging in modest amounts on a consistent basis is, and always has been, the best approach.

Fisher Precious Metals Product Pricing

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I do not have a crystal ball, but these predictions are the distillation of everything I have read and everyone I have spoken with in and outside of the industry.

MORTGAGES

Mortgage rates will fall below 6% for credit scores above 750.  Marginal credit will see interest rates around 6.5%

PREDICT MORE INFLATION

Real inflation (not the fake, self-serving government numbers) will outstrip wage growth.  The Low and middle income households will get poorer in real terms

INCOMING LAYOFFS

I am reading predictions showing 10% layoffs in big and small companies everywhere (Google, Citi, UPS).  Don’t believe unemployment numbers.  I have clients and acquaintances who have applied for a multitude of jobs to no avail.  AI and robotics are going to wipe out many professions – blue and white collar.  Young people should consider the trades (plumber, electrician, medical) where there will most likely always be a need.

PREDICT MORE CONSUMER SPENDING

Spending went crazy during the plandemic, and predictions show it is not slowing down.  Consumer debt is between $1-$1.4 TRILLION dollars.  Average credit card interest rate stands at 21.2%.  Delinquencies are at all-time highs.  Bankruptcies are on the rise.  19% of all car loan/lease monthly payments are over $1,000.  Average car loan term is 5.5 years.  62% of new car loans are being denied.  Mortgage application denials are on the rise.  Here in south Florida, the Canadians didn’t come down this year as they always do – they couldn’t afford it due to prices and exchange rate.

DE-DOLLARIZATION

The dollar is continuing to decline in prominence.  What country wants to hold debt of a nation that is 135% of GDP and dilutes (prints) at will?  BRICS and prospective BRICS countries want an alternative.  The U.S. uses the dollar as a weapon, most recently illustrated by forbidding Russia to use the SWIFT international payments system.  Russia is showing the world that they don’t need dollars – they can do direct currency swaps with the recipients of their oil and store their reserves in gold and bitcoin.

MORE WAR

Predictions show wars, proxy wars and new wars will increase.  Ukraine will eventually have to acquiesce, at least partially.  The U.S. and Israel will bomb Iran while the international community stands by with token support – allowing us to use money we don’t have and continue to put our soldiers in harms way.  China will go into Taiwan – maybe not this year – but they will.  One of these days someone will use a nuclear device.

PREDICTIONS ON ILLEGAL IMMIGRATION

Prediction show that we will continue to drown in illegal immigrants. We have terrorists within our country planning single and/or significant attacks.  We will have another 9-11 equivalent instance.  Chemical, Cyber, bombing or even a dirty nuclear device.  Immigrants will be in every city in the United States as they spread out.

ELECTION PREDICTIONS

Here are some possibilities:  Either Trump or Biden don’t make it to election day.  Haley is hanging on in case Trump goes to jail or dies prematurely.  Newsome and Michelle Obama are in the wings in case Biden completely falters or dies prematurely.  Jail, complete falter or premature death for Trump or Biden – desperate times, desperate measures.  In the end, as with the 2020 election, the end justifies the means.  How about a national cyber event just before the election, or covid 2.0, or use your imagination, could result in suspension of the election and martial law.

FED PIVOT

It’s an election year.  “It’s the economy stupid”.  Predictions show rates will come down.   Liquidity will be pumped into the system which will have to flow somewhere.  The stock market and home prices will rise.  Many people will “feel” richer.  Fed rate pivots typically are followed by a recession 6-12 months later.  They will juice the economy and put lipstick on the pig.

This list isn’t exhaustive, and my readers are largely aware of all of these items already.  What to do?

1. Get out of debt except for your mortgage provided you have equity in your home
2. Have 3-6 months cash at home.  Many of the black swan events I have cited could result in bank closures / bank holidays and non-functioning ATM machines
3. Get 5% or more of network in physical gold/silver/platinum – purchases are still largely unreportable, and that WILL change
4. If you invest in the stock market, the NASDAQ and S&P should do well for the next 12 months.  Just buy the indexes – don’t stock pick
5. Dip your toe in bitcoin.  Educate yourself on YouTube.
6. Buy land other than your principal residence.
7. Read your Bible or Torah – it will reassure you that God is fully in control even if we don’t understand and it makes no sense.  His ways are not our ways.

John

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I’ll save the words – you can clearly see for yourself from the pictures.  You tell me how this is going to work out!!??

TREASURY DEBT

FEDERAL DEBT

– 120% OF GDP (Try to get a personal loan if you already owe 120% of what you are worth)

U.S. DEBT HELD BY FOREIGNERS

(can you say BRICS plus Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE)

FEDERAL GOVERNMENT INTEREST PAYMENTS

(oh, this is sustainable……)

PURCHASING POWER OF THE DOLLAR

– NOW 3.2 CENTS (from creation of the Fed in 1913 until today)

PERSONAL INTEREST PAYMENTS

(the ONLY thing that is keeping this economy going is the consumer, accounting for 70% of GDP.  Credit cards, interest rates on which are up dramatically, home equity loans, 401k/IRA hardship loans, student loan deferrals, covid checks, Paycheck Protection Program (PPE) and the list goes on)

Wall Street wants Main Street to think that the Fed and Treasury have it covered, and the landing will be soft.  Placate the masses, and if necessary, a good health pandemic and a war or two should help keep them distracted.

KEEP PREPARING – SLOW, BUT STEADY

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