Richard Nixon

"Don't worry. Trust me." -- President Nixon - photo White House Photo Office

On August 15, 1971, President Richard Nixon declared that the United States would no longer honour its promise to exchange US dollars held by foreign central banks for gold at a fixed price of $35 an ounce. The innocuous term ‘Nixon closed the gold window’ that is now widely used to describe this act does not quite convey its significance. (Was something to be stopped from going out or from coming in through the window? Can the window be reopened again?)

What Nixon did was cut the last remaining official link between the world’s leading reserve currency and gold and thus remove the last constraint on fiat money creation.

Was this a big deal? – It was very big deal. In fact, we are only now beginning to realize the full consequences of it. In fact, the present crisis is nothing but the endgame of this system, or non-system, of this, mankind’s latest and so far most ambitious, experiment with unrestricted fiat money. The first truly global paper standard.

Nixon knew that it was big. On TV that day he felt compelled to reassure the American public that this was only temporary and that the purchasing power of the dollar was secure. Forty-one years later we are still on the same system (or non-system), and the dollar has lost eighty percent of its purchasing power.

But, the mainstream economists, who weren’t even involved in designing this system (or non-system), as nobody designed it, it was simply the result of political opportunism — these economists today tell us that this system is great, it is to our advantage. We should be grateful for it.

Because the eighty percent drop in purchasing power quoted above, isn’t the whole story, that is only CPI, the consumer price index. For the past thirty years, a lot of the newly created money was channeled predominantly not into the markets for consumer goods but into the stock market, the bond market, the real estate market, and again the bond market. This created illusions of wealth. It also created a lot of debt, overstretched banks, a gigantic financial industry, various bubbles, and yet more debt. It did so around the world. And whenever this house of cards looks like it could come crashing down on us – we print more money!

Simple. What can go wrong?

Of course, there was also real economic progress over those forty-one years. Entrepreneurship, trade, innovation, saving, and all that old fashioned stuff that modern, enlightened economists don’t talk about any more. But on top of that real prosperity an ever thicker layer of make-believe prosperity accumulated. And our economists have adapted to this new reality – a reality created not by them, or their theories, but simply borne out of cynical political expediency – and become experts in the various techniques of governments to create illusionary prosperity and short-term growth spurts. Stimulus. Growth through low interest rates. Growth through more debt. Growth through currency debasement. Growth through fiscal policy. Growth through monetary policy.

Modern economists don’t know capitalism. They certainly don’t care about it. If the economy grows it is because of good policy, which means low interest rates and stimulus. If the economy doesn’t grow, it is because of bad policy, which means interest rates are too high (even if they are zero) or the central bank does not print enough money. Since Nixon ‘closed the gold window’, we have progressively replaced savings with cheap credit, the market with policy, and entrepreneurs and innovation with the FOMC and the G20.

Since 1971, the number and intensity of banking crises around the world has gone up markedly, according to Carmen Reinhart and Kenneth Rogoff, hardly anti-establishment economists. Debt levels exploded. The ten years up to the start of this crisis in July 2007 have seen house prices in the US rise ten times faster than over the previous one hundred years.

Look around the world today. Is it a coincidence that all major central banks are at zero interest rates to support bankrupt banks and bankrupt governments the world over?

Bizarrely, it is today the advocates of sound and hard money who are made to explain their atavistic ideas. — Gold standard? To establishment figures like Lord Skidelsky, the advocates of a gold anchor are like druids who dress in strange clothes and worship ancient gods – rather than, as befits the enlightened modern economist, worship at the altar of Keynes, the IMF, and big government. And ex-central banker DeAnne Julius simply knows that it would be foolish to return to a gold standard. All power to the bureaucracy!

What I find fascinating is how many intelligent people are willing, even feel urged, to provide intellectual support for a system that is not the result of intellectual discourse but came about – rather non-intellectually – through sheer power politics, opportunism and hubris, and that is evidently failing. Our financial system (or non-system) offers a great example of Nietzsche’s dictum that investigating the true origin and the true motivation behind things most often leads to surprising results. The purpose and the clever design that most people later believe to be behind various institutions are often only projected onto them with hindsight.

Even more bizarre is the willingness to absolve the political class of their responsibility for the disaster they have inflicted on us, and to even look to the political class to now save us from this ever-growing mess. There is something disturbing and sickening about the pathetic reverence of commentators, analysts and economists for the policy bureaucracy, the central bankers, the G20, the finance ministers; how every word they say is scrutinized for any hint of another clever scheme, another policy initiative that could make all our past mistakes go away and that could make the status quo operable again. “The weak labour market could force the Fed into action,” as if the Fed had the key to the solution in some drawer, as if all that was needed now was another round of QE, another rate cut, another twisty price manipulation.

I wonder if forty years of paper money have made the politicians bolder and the economists dumber. But maybe at this stage they are both simply getting more desperate.

And nothing is more dangerous to your personal and material wellbeing, and your liberty, than desperate politicians. Desperate politicians think that the end justifies the means. No constraints on their ad hoc decision-making can be tolerated. Laws must be changed if they stand in the way.

On October 27, 2010, Chancellor Angela Merkel promised the German parliament that the bailout fund EFSF (European Financial Stability Facility – you couldn’t make this stuff up!) was a temporary thing. As temporary as Nixon’s closed window, one assumes. In February of 2010, Greece had already been bailed out the first time – in contravention of the no-bailout clause in European treaties. Now a bailout fund was needed. But not to worry. This is only temporary. And we know what we are doing.

Of course, as more bailouts were needed, the EFSF grew bigger. It will now be replaced with the ESM – the European Stability Mechanism, no sniggering please. And this thing is, of course, permanent. (The German Constitutional Court will rubber-stamp it soon. Not to worry.)

What do our commentators and mainstream economists have to say about it? – Great! We need a big bazooka! Merkel should do more!

EVERY law, regulation and restriction that was part of the original set-up of EMU has now been broken.

The limits on budget deficits and overall public debt limits (Maastricht Criteria)? –Ignored.

The no-bail out provision? – Ignored.

The ban on ECB buying sovereign bonds to support fiscal policy? – Circumvented with the flimsiest of excuses.

Let’s face it. There is no master plan here. The political class is losing control. There is not even a conspiracy. There is a lack of control, of direction and of design. One quick-fix after another, and every one brings us a step closer to a very nasty endgame.

For the final option is always the same, not only in the Euro Zone, where new ‘hope’ just arrived in the form of Mario Draghi’s apparent willingness to buy more government debt, but also in the US, the UK, Japan, and China: print more money.

If you have no (or little) debt, if you are a productive citizen and if you have saved a bit, you are already in the crosshairs of the policy bureaucracy. Either your property will get taxed away or inflated away. Probably both.

The biggest threat to your property and to your individual liberty does not come from markets and not even from the bankers. It comes from politics.

 

Print Friendly
Share on LinkedInShare on TwitterSubmit to StumbleUponhttp://detlevschlichter.com/wp-content/uploads/2011/04/Richard_Nixon1-150x150.jpgSubmit to redditShare via email

56 Responses to The triumph of politics

  1. [...] – Detlev Schlichter, papermoneycollapse.com [...]

  2. Excellent piece once again! You have summarized the situation beautifully

  3. Brilliant summation of the ‘non-system’ we have in place now, Detlev. Let’s hope the big investors in US Treasury bonds start to lose faith in this racket, triggering the downfall of this house of cards.

    Shared on Facebook.

  4. George says:

    I wholeheartedly agree with Cris Sheridan.

  5. Bud Wood says:

    Strange, but 55% of USA citizens (residents) believe that the politicians will be looking out for the citizenry in case of any problems. That’s down from only 10 years ago when about 65% figured that the politicians were there to protect the citizens.

  6. JR says:

    Nice article but you could have summarised it all in one paragraph.

    “the disaster they have inflicted on us… this ever-growing mess” is due solely to the government, through its irredeemable credit, destroying the quality of what should be the highest quality good of all – money, the most precious thing.

    The ‘assets’ of the banking non-system, including central banks is junk. Therein lies the source of the problem, lead is being passed off as gold. The monetary non-system is a credit bubble of galactic proportions, hopelessly irrational. The South Sea Company on steroids.

    As Isaac Newton is said to have said, “I can calculate the motions of heavenly bodies, but not the madness of men”.

    • acomfort says:

      “this ever-growing mess” is due solely to the government,”

      You may be giving the inferior, submissive yielding governments too much credit and not enough to the majestic, highest imperial, ruling, sovereign corporations.

  7. Stephan F. says:

    I’d like to make an observation about an issue going back to 1971 that’s almost never or discussed. Perhaps most view my historical claim as being insignificant and therefore not relevant. But it’s an important one nevertheless, and I believe it to be authentic.

    The general idea put forth by most modern day followers of the Austrian school — at least those whom I’ve read — is that Nixon’s closure of the gold window was the very beginning of the Federal Reserve’s ability to expand the money supply in willy-nilly fashion. In other words this act would essentially remove the handcuffs from the Fed who now could act out any & all financial adventures it deemed necessary or could conjure up. Finally they could now begin to act out their malfeasance. This notion has been presented by some very smart people as the absolute primary reason that motivated Nixon & his cronies. In addition — and again, according to contemporary thinking — Nixon’s action was also perpetuated by the US govt’s desire to break the link between the dollar & gold thus giving them the power to create almost infinite credit, thereby making it easier for the Uncle Sam to borrow money. I mean, you talk about conspiracy, this certainly sounds like one to me. To top it off, this devious plan had been in the making for many years, perhaps even decades, and now it was finally coming to fruition.

    There’s only one problem with this seemingly plausible notion. It was “not” the primary reason why Nixon took his ill-advised & immoral action — which should negate the suspicion of conspiracy. Although I believe some of these purported notions, they just weren’t the primary reason(s) that motivated Nixon.

    So what was the primary motivation behind this scoundrel’s action? This very simply fact. At precisely that point in time in 1971 he was probably approached by his treasury secretary and other high ranking economic advisers warning him about the country’s constant & ever-dwindling inventory of gold reserves. They told Nixon that Fort Knox was being raided by those greedy foreigners who, gasp! actually demanded gold in exchange for their dollars! How rude & inconvenient. And if the situation did not change, and quickly, he would soon be required to go on national television and try to explain to the American electorate why Fort Knox had become an empty warehouse. Not a pleasant prospect. Voilla – instant panic by the commander-in-chief. He panicked and the rest is history. The good news for Nixon & his cronies (especially the Fed) was that, as an aside, they would now be enjoying all the residual benefits as stated above. This was the perfect “windfall” they (the statists) got to enjoy in the bargain.

    One last important point. The notion that the year 1971 was the inaugural year that somehow the Fed and the rest of the world’ central banks were turned loose to debase the currency with their printing presses thereby inflicting their toxic medicine on the economy is absolute nonsense. By ’71 the illegal, immoral, and fraudulent Federal Reserve had been printing excess currency for many many years. Why in the heck do you suppose all those foreign governments wanted gold for paper dollars? So because of the many years of illicit counterfeiting by the Fed which caused foreigners to demand gold for their greenbacks, Nixon’s hands were tied. He was forced to close the gold window — not the other way around. Nixon had to take the actions he did as explained above and not out of some conspiratorial theory that he somehow hated gold or Bretton Woods.

    I’m curious about your thoughts on this subject Detlev. Thanks for listening.

    . Would like you to confirm, or deny this hypothesis?

    • Stephan F. says:

      Oops, typo.

      Please strike the very last sentence, “would you like to confirm or deny this hypothesis?”
      Sorry.

    • JR says:

      You are right without elucidating the reason.

      The obligations of the US government & its central bank were junk in 1971, that’s why Nixon ‘closed the gold window’. There was no possible way the US could have redeemed its obligations for gold at $35 an ounce, probably not even $3500.

      The US defaulted outright. Somehow, I think because every other nation meekly accepted the default, the credit of the US has remained ‘money good’, albeit with much increased volatility in the price of these obligations.

      As I said above though, it is the quality of the obligations that determines their value, not the quantity per say. The US centred monetary non-system is now the greatest credit bubble in human history. Completely irrational.

      • JR says:

        I think that should be per se

        • Stephan F. says:

          Thanks for the confirmation. I think it’s important that people (esp. the youth who weren’t around in those days) have a firm understanding of why the cast of players involved did what they did that led to the disastrous consequences we must deal with today.

          To reiterate, Nixon did not close the gold window to make it easy for the Fed to print money, rather, because the Fed was printing money Nixon was forced to close the gold window.

          • Stephan, I don’t think that there is a big difference between your description of the events of 1971 and my analysis. The point I was trying to make was precisely that there was no conspiracy theory, that there was no master plan, and that Nixon didn’t even fully contemplate the consequences of what he did, let alone make them part of a detailed calculation. He was, like most politicians most of the time, responding ad hoc to an immediate challenge: the USA was hemorrhaging gold. In fact, this was a situation that already dated back to the 1960s, when the famous gold pool had been formed to suppress the gold price, and it had become a really big problem by 1971. But that doesn’t mean he didn’t have a choice. He did have one. And the choice he ultimate made is very telling – it tells us something about him, about the intellectual backdrop, his advisors, and about politicians in general. The reason that foreigners took delivery of physical gold rather than hold on to their dollars was that they began to lose confidence in the latter. Evidently, they were concerned about US fiscal policy – funding the Great Society and the Vietnam War – and US monetary policy – the relentless printing of dollars by the Fed. So the choice for Nixon was between continuing with easy monetary policy and irresponsible fiscal policy, or restoring fiscal and monetary discipline and restore confidence in the paper dollar – and thus stop the outflow of dollars/gold (Volcker did it in 1979/1980). We know what choice Nixon made. He might even have believed, at the time, that this was temporary. And he certainly didn’t have a big plan to create monster Wall Street banks and bubbles in housing, mortgages and derivatives. But when the decision was between continuing with big government or accepting that the gold link should put constraints on monetary and fiscal policy in the US, Nixon chose to go for more degrees of freedom for politicians. He wasn’t the first politician to do this and he won’t be the last, that’s for sure. Bretton Woods was no gold standard but it should have provided some constraints on monetary and fiscal policy. Critics of the gold standard say that it was a straight jacket for politicians. My point is that this is precisely the biggest advantage of a gold standard. For the past 40 years, politicians and bankers have worked without a straight jacket. And look where that has brought us.

          • Stephan F. says:

            Detlev:

            Thank you for your kindly response and the fine analysis of the events leading up to Nixon’s infamous 1971 decision. In today’s era of political & economic turmoil I believe many people still misunderstand his actions and fail realize how profound they were with regard to our current economic difficulties.

            I assure you that my post was in no way trying to refute any of your facts or assertions. Mine was only to get your further perspective on why Nixon did what he did. I realize no human being can get inside his head so we’ll never know exactly his reasoning. We can speculate however, and that precisely was my intent.

            Any contention implied in my post was not directed at you but at those who unequivocally state they know precisely why Nixon closed the gold window, and that the reason was completely evident for all to see: that he hated gold & the gold standard — which he probably did, but again, it wasn’t his primary reason — and he therefore conspired to a most devious scheme to shut it down. I simply contend that those who have this conceit (you don’t) are simply wrong.

    • Roger says:

      Feeding a little conspiracy theory … considering a four-year schedule, put aside the gold standard and impose the petro-dollar, to give clear benefits to American industry, are not exactly as steps in a blind.

  8. Huge Fan says:

    What’s been up with you lately Detlev? Last two post are much more powerful and emotional, and you’ve broken the “and the debasement of paper money continues” streak.

    If I was a prophet I’d say the sudden yet subtle change in Detlev’s posts marks the beginning of the end.

  9. Kelvin Barclay says:

    Detlev,
    Is there a link between interest rates and the price of gold?
    When Volker raised the interest rates that caused the price of gold to fall?
    This time they can’t raise the interest rates because with so much debt they can’t afford the interest payments?

    I once paid 18% on my mortgage so how come Spain can’t afford 7.3%?
    (I guess they have a bigger mortgage)

    • Single Acts of Tyranny says:

      In the days of 18% interest rates, politicos thought inflation to be bad. Now they see it as useful.

  10. casamurphy says:

    “The biggest threat to your property and to your individual liberty does not come from markets and not even from the bankers. It comes from politic[ian]s.”..who are owned by bankers…so I still say a required start to a solution is to hang a few bankers.

  11. John Smith says:

    Another excellent article. These should really be getting more readers – in the print press and other financial websites.

    A follow-up book to ‘Paper money Collapse’ would also be welcome. Perhaps one with a series of essays about how the crisis has evolved and the stage we are at etc.

  12. NoOneOfConsequence says:

    Another well written, topical article, full of condemnation and righteousness.

    I am soooo tired of articles like this.

    Where oh where are the people who have ideas on how to turn things around? I really hate how everyone seems to have adopted this kind of malaise or hopelessness around this matter.

    Can’t at least one of you well meaning, considered and thoughtful authors come up with some ideas on how simple folk such as ourselves can contribute make things right?

    For that matter…what is right? How can we realistically return to a gold standard now?
    The gold standard has it’s problems too….particularly in dealing with population growth.

    I have often wondered if we need to develop a money indexed upon human capital or potential…at least that way the volume can grow and shrink based on population.

    • The situation we are in is a mess. There is no solution, if ‘solution’ means a painless unwinding of the accumulated imbalances. Policy makers have two choices: 1) stop printing money, allow the market to work, which means allow the market to liquidate the imbalances; 2) to print ever more money in an attempt to avoid the unwinding; this will cause imbalances to accumulate further and this will end in a complete loss of confidence in the entire system and currency collapse. These are the two choices. I think they should go for 1) but I fear that they will go for 2). Both of them are painful but 2) more so. (What is Keen’s idea about the ‘jubilee’? It sounds like a celebration. All our debts are forgiven. – It won’t be that nice because one man’s liability is another man’s asset.) You and I have no impact on this. So why am I writing my blog? Because I would like to affect the debate on the margin and find people who see it similarly, and maybe make a few people see it my way. And test my own ideas in the process. I think we are at a major crossroad for our economies and our political system. It is a frightening prospect but it is also deeply fascinating. I think the urge to understand it, to write about it, and debate it, is understandable. That’s all I am trying to do. I won’t change the course of events. — What can the individual do to protect himself/herself and his/her assets? – I think there are some things you can do but not that many. It is very difficult. I plan to write a blog about it soon.

      • JR says:

        Detlev, this “print ever more money” idea is not striking at the root. While it is true that central banks are “printing ever more money”, it is the quality of those obligations which is the only consideration regards its value.

        The central bank could be printing unlimited amounts of obligations if they have the quality of gold, which is to say, they are redeemable for a fixed quantity of specified quality gold. This means the central bank is lending against, or monetising, Real Bills – bills drawn on goods actually demanded by the consumer, extinguished by the gold of the consumer. The Real Bills doctrine was the original basis for the operation of central banks, including the Fed.

        This original basis has long since been corrupted by the government, principally due to the bankruptcy of government during the First World War. Central banks have been monetising junk – government bonds, unfinished real estate, empty matchboxes etc etc for decades.

        But I agree there is no solution.

      • Helen7 says:

        Your blog is what economists should be doing: giving us honest perspectives and knowledge about money and the economy. You are doing your job, so thank you.

        Here is an all too common real world illustration of how grossly out of balance our economy has gotten.

        40 years ago my dad had the following economic situation:
        Mortgage-$10,000 for a 6 bedroom 2 bath house on an acre outside Milwaukee, WI.
        Interest paid-$6000
        House payment- $70/month
        Annual income-$13,000, (my mother did not work outside home). They had 14 children,we all went to private school, most of us got college degrees, and he still managed to save $50,000 when he retired 20 years ago (this was in addition to a pension).

        Today, my brother has the following economic situation:
        Mortgage-$150,000 for a 4 bedroom 2 bath house on a 1/4 acre outside Milwaukee, WI.
        Interest -$170,000(by end of the term).
        House payment-$900/month
        Annual income- $60,000.
        He and his wife have 3 children, all in public school, and he has no savings and no pension due him. (She also works)

        In 40 years mortgages for comparable houses went from being less than annual income to 3 times annual income. The mortgage interest paid went from 50% to 113% of the original debt.
        House prices increase 15 times.
        Income only increased 5 times.

        I include this because I have seen too many financial articles about mortgage/income ratios which skip right past these real number comparisons between today and the not so distant past. Government officials are equally evasive.

        These numbers make it look like the last 40 years have been a fleecing of America. The only good news is that these numbers also indicate that there isn’t much left to fleece.
        ‘Investors’ will have to find other sheep.
        As a solution we should all just act poor, sick, and worthless for awhile, until they go away.
        So we have that to look forward to.

    • Stephan F. says:

      @ NoOneOfConsequence:

      Although I certainly sympathize with your frustrations regarding our dreadful economic situation, I believe that complaining about it and then shooting the messenger is not going to contribute to the solution. Your tone commands an “immediate & simple solution to the problem”, put forth the sooner the better. I’m sure you’ll agree that’s not possible.

      In fact, Detlev is providing a solution. In order to solve a problem, you must first determine the cause. I submit that’s exactly what he provides with his insightful writings. I, for one, very much appreciate his candor, his tenacity, and his unique & detailed analysis (I could go on).

      Oh BTW, how is it that a growing population causes problems with a gold standard? Hmmmm.

      • Rob says:

        Also to @NoOneofConsequence

        Detlev has clearly demonstrated what could be done to remedy the situation we are in. But as he says it is still very unpleasant to go through and our electorate and politicians are not yet ready to face up to that, preferring to persist with the delusions fostered by modern economists, central bankers and politicians themselves.

        The good news is that either way the system will get sorted out. The bad news is the process could be very painful for us all – even those who have made some preparation.

        On a completely different note if you want to get a real feel for what happens when a continent goes to hell in a handcart then read a book called “Savage Continent” by Keith Lowe. It details what happened the last time people in Europe went mad following economic/political meltdown. It is a grim read.

  13. casamurphy says:

    @nooneofconsequence

    Keen’s debt jubilee and other proposals and FOFOA’s freegold predictions might interest you…

  14. HJP says:

    It seems to me that at some point, the debt that is held in the form of various financial derivatives by the major banks will need to be revalued or exchanged (i.e. unwound). The process of this “debt unwinding” is the root of the issue (imho).

    The major problem that societies must deal with (especially the super wealthy) is how to exchange the paper debts (i.e. derivatives) they have invested in or collateralized. These derivatives have been used in so many ways to secure physical and other financial assets that the unwinding process will be complex & painful and the revaluation / exchange even more so. The questions are how to bring about a start to this process and in what sort of frame work.

    As has been stated by so many, our politicians are not motivated to bring the financial system (and thier carrers) to its knees, so they only solution they are willing to consider is to “kick the can down the road” by creating more and more debt.

    I do not see anyone wanting to destroy the quality of life by allowing total anarchy to prevail. When push comes to shove, I believe that most people will find a way to hold together what is needed to backstop a reasonable quality of life. There will always be a need to have a means of exchange that is easily (and electronically) transferable.

    We need change the laws so that our elected officials cannot continue to ignore the failures of our current system. I am not a legal or political expert and would like to solicit the opinions of others who may have some rational ideas on what types of laws / legislation needs to be written and what language would be needed to give the proposed laws / legislation the strength to bring about change.

    • Rune K. Svendsen says:

      We need change the laws so that our elected officials cannot continue to ignore the failures of our current system. I am not a legal or political expert and would like to solicit the opinions of others who may have some rational ideas on what types of laws / legislation needs to be written and what language would be needed to give the proposed laws / legislation the strength to bring about change.

      Trying to control politicians (and, implicitly, ourselves) through regulation is a bit like an obese person trying to control his weight by locking the door to the kitchen. Every time he is hungry, he unlocks the door to the kitchen and proceeds to stuff himself with food. After he has done this he is full of guilt and his solution, to try to get rid of this feeling, is convincing himself – via thought – that it can be solved by him locking the door to the kitchen to prevent him from eating again. He believes his thoughts; he thinks he has solved the problem; his feelings of guilt are gone.
      But what he convinces himself to be a solution is not one. When he becomes hungry again, the cycle repeats. Laws and regulation are no more than an outward symptom of this inner state that most humans live in. Humans, who try to solve personal problems using thought will try to solve societal problems using regulation. They are two sides of the same coin.

      Expecting regulation to solve the problem is the cause of the problem itself.

      Now, “what is the solution?” you might ask. The solution is simple, and we all know it: do nothing. So if we all know what the solution is, why does the problem still exist? It exists because the thing that human beings find harder than anything else is doing nothing. We can climb mountains and run marathons, but very few people are able to endure inactivity. You can try it out for yorself: sit down on a chair for three hours and do nothing. If we challenged one million people to sit down on a chair for three hours and do nothing, at least 99% of them would either stop prematurely and start doing something, for example by starting to think about something in order to avoid doing nothing. Most – if not all – problems we see in the world are a consequence of this fact. When human beings learn to do nothing, we will no longer see regulation that tries to solve societal problems, because the regulation was a symptom of the problem itself.

      • HJP says:

        Doing nothing is only waiting for the system to implode and accepting the consequenses. I think we would be better served if we all find ways to put pressure on the politicians.

        It is a bit existential to think that “doing nothing” will solve any problems. Implementing meaningful change will require discispline, oversight and regulation and the laws that provide a means to enforce the changes that need to be made.

        It is unfortunate that so many of us are afflicted with complacency and will just accept what comes along. Until enough of us find the voice and initiative to organize and bring forward our voting power to make change, we will be in downward spiral until the financial system does implode.

  15. JungianINTP says:

    Study the underlying psychology of political affiliation to grasp the ROOT CAUSE of all human conflicts (( of the battle between the EMOTION-DRIVEN Keynesians and the LOGIC-DRIVEN opponents of fiat-based, fractional-reserve, moral-hazard banking )); study my analyses in the last two posts on this Andrew Gavin Marshall page:

    http://andrewgavinmarshall.com/contact/#comment-2690

    • Janet-from Worthing says:

      I have been reading Detlev’s blog for months after seeing him on Sky News, and I can’t describe the enormous relief of seeing someone for the first time saying something honest.

      I don’t understnad much about economics and stuggle with some of the concepts but wanted to comment on the root causes as it strikes me how this fiat money system sincronises with the epidemic post modern philosophy that is creating havoc everywhere.
      Getting rid of the gold standard is like eliminating anything absolute, making everything relative, manifesting complete fluidity and with it ultimately the loss of meaning.
      This thinking has been responsible for multi-culturalism too, it’s everywhere.
      Unfortunatley there is no answer but I wanted to express my gratitude for reading everyone’s thoughts on these blogs as I am just a humble taxi driver on the south coast of the UK.

      • JR says:

        “Getting rid of the gold standard is like eliminating anything absolute, making everything relative, manifesting complete fluidity and with it ultimately the loss of meaning.”

        That’s perspicacious for a taxi driver, maybe you should be Prime Minister.

        A much simpler way of looking at it though, is that getting rid of the gold standard leaves nothing to regulate the quality of credit. Only gold possesses an eternal, so absolute, quality.

        With nothing to regulate its quality, the quality of credit everywhere has become junk.

  16. prtrb'd says:

    I heartily disagree with the idea that there was no thought behind this immense wealth building for the elite. Look at house of rothschild in the 1800′s, look at creation of the fed in 1913. Creature from Jekyl Island lays out a very good argument that a well planned takeover of THE monetary system was put in play a long time ago. Sure maybe Nixon was just another manipulated player, but the puppeteers had firm control of the strings. My bet is we will see a well played attempt to form a one world currency (before 2016) as THE way out of the chaos that erupts as countries start falling apart due to worldwide monetary collapse. History tells us that gold will come back in favor as people rebel against authority. Worldwide revolution? Got gold?

  17. “There is not even a conspiracy” gee, members of an almost unknown organization calling itself The Pilgrims Society, have launched dozens of major worldwide attacks against silver and gold since 1902, and must have done so unconsciously, without realizing what they were doing. Details provided at site linked. Much more than you’ve bargained for. This is the research refused coverage by Gold Anti-Trust Action Committee!

  18. George says:

    “What can the individual do to protect himself/herself and his/her assets? – I think there are some things you can do but not that many. It is very difficult. I plan to write a blog about it soon.”

    I look forward to reading your thoughts on this matter.

  19. Agent P says:

    “The biggest threat to your property and to your individual liberty does not come from markets and not even from the bankers. It comes from politics.”

    That is like asking: Who came first, the chicken or the egg…?

    The fact remains that it is access to money that determines favor, which in turn determines your fate. Money – ill gotten or unwisely used, provides the platform from which Tyranny leaps.

  20. Randall B says:

    Excellent article! Even in Canada, where we brag that we don’t have these same economic problems, the truth is evident. We now have one of our big 5 banks calling for more “stimulus” spending.

    Time to consider more stimulus spending: CIBC
    http://www.ctvnews.ca/business/time-to-consider-more-stimulus-spending-cibc-1.897816

    “CIBC chief economist Avery Shenfeld says with interest rates at record low levels, borrowing is so cheap that the government may actually come out financially better off by going deeper into debt.”

    These guys are just the puppets – how can you be better off financially by going further into debt? You can’t spend your way to prosperity.

  21. GD says:

    Excellent article, great contributions. Many thanks. I certainly will keep on reading in order to at least understand the upcoming desaster.
    It is really grotesque to see that politicians are not even challenged for all these serial breaches of law, leave alone for their blindness to forsee, leave alone to prevent the absurdities.

  22. GD says:

    For Gods sake , please change my screen name to GD!

  23. Laird says:

    Not exactly correct, Agent P. Power is “the platform from which Tyranny leaps.” The source of that power can be money, but only indirectly. The real source is always political. We in the West (and in much of the rest of the world as well) have permitted our governments to grow too huge and powerful, which concentrates power in the hands of a relatively small group of individuals. Such power always attracts those least deserving of possessing it; Lord Acton was correct. Attempting to limit that power, via constitutions, laws or courts, is a losing game; sooner or later the politicians always win.

    The only method of limiting it is to shrink government and divide it into small units, dispersing power as widely as possible. The federal system in the US, with states retaining most of the power and the federal government limited in its authority, was an excellent model for doing this, but we have permitted the federal government to grow beyond its proper boundaries. We can all see the results. Until power is devolved back to smaller political units, closer to the people, we will never be free of this tyranny.

  24. [...] article was previously published at Paper Money Collapse. Detlev S. Schlichter is a writer and Austrian School economist. He had a 19-year career in [...]

  25. bill says:

    I greatly enjoy visiting this site — Detlev writes lucidly and well and
    there are good questions/comments with Detlev generously responding.I have his book and am a big fan.
    Others might google for and download (I think the Mises.org site provides it)a tract called “The Monetary Sin of the West” by Jacques Rueff who advised De Gaulle to swop Dollars for gold among his many achievements.He saw a terrible problem back then (1968 from memory) and many must have been shaken who read it at the time.I wonder what he would think today?

  26. Bill says:

    Nothing can be done until the Radical-in-Chief and his Marxist cabal and crony capitalists are turned out of the White House on November 6th. We also need a Tea Party Senate, which we may get, with people like Cruz in Texas: http://www.humanevents.com/2012/08/03/ted-cruz-at-redstate-we-are-winning-this-fight/ He crushed the Establishment Republican 57-43 in the primary election on July 31st. A big factor is who will Romney pick as his Secretary of the Treasury. I have a hunch that Ron Paul may be a candidate, as he is retiring from the House, and has met with Romney. We can only hope it is he or someone like him.

    Question for Detlev: Once the new Congress has started to take meaningful steps to reduce the deficit, to decrease the size and power of the federal government, to devolve power and responsibilities back to the states, and has tackled entitlement reform, what about floating a some small (say a few $$$billion each) long term bond issues backed by hard assets? One would, of course, be gold. Another could be a basket of industrial commodities. Experiment. See how the market prices them. I predict they would be gobbled up.

    It is going to take 50 years to unwind the disaster that the “Progressives” have spent 100 years foisting on us, not just a few election cycles. One of the first steps has to be restoring a sound currency, but the witless commentariat is so mesmerized by the economists, central bankers and other intellectual frauds, that we are going to have to take small steps. It seems to me that successful auctions of sound bonds will be a good start. It will let reformers get some breathing room to move forward, and shut up the talking heads. Otherwise, I fear that a move straight to sound money would be nothing but a Pickett’s charge against the Establishment politicians and bankers, and we’d never make any progress. We’d only lose momentum, and, in fact, maybe even hand things back to the money printers, leading to your predicted collapse. What do you think?

    • John Campbell says:

      Bill, you seem confident that the Republicans will reverse the course of government expansion. Is this realistic? My understanding is that even Reagan only slowed the process of government expansion. He said a lot of the right things but for whatever reason, great progress in expanding liberty was not made. There is huge momentum within governments on both sides of the political spectrum, to grow the state, and avoid truly shrinking it at all costs.

      The only message I get from Romney and most of the Republicans is that they are horrified by Obama and the Democrats, and they would do better. Yet they do not admit to their own huge contributions to this current and growing mess. The solution to this is political, but will not come from these politicians who crave power and status – the public be damned.

      The solution will come as the people wake up to the dangers of political power and refuse to participate in this charade of democracy. We must withdraw our support of all politicians and the current political process. The solution is not coming from the top down, but from the bottom up. A peaceful and idea driven revolution is the ultimate solution – the Tea Party movement would seem to be part of this process. Education by brilliant lights such as Detlev are absolutely required. Until then we will muddle along – left or right statism matters little. The correct ideas are our hope for a much better future and I remain confident that they are beginning to take hold and will only grow in the future.

      In the meantime, pass the popcorn and watch the show as history unfolds.

      • Porky says:

        Mr. Campbell asks:

        Will Bill feel confident that the Republicans will reverse the course of govt expansion?

        I won’t speak for Bill of course, but I believe there’s little chance of that happening — but I’m willing to give it a shot.

        What you & others don’t seem to realize is a much more important issue. I’m 100% confident that the current tyrant-in-chief and his minions will absolutely expand govt power significantly. They will oppress citizens with more stifling govt regulations, restrictions, & rules that can only lead to a much lower standard of living and permanently seal the country in a state of perpetual depression.

        Now, it seems to me that your mindset here is “well, since I’m pretty sure Republicans won’t advance the cause of freedom & liberty, then it’s ok that we just re-elect the Demo(n)crats and destroy the country. Really?

        Secondly, your point of: “The solution will come as the people wake up to the dangers of political power and refuse to participate in this charade of democracy.” This popular view is a reasonable one that’s held by many freedom advocates. But there’s only one problem with it; it won’t work. Hell will solidly free-over before the average & spoiled Amerikan citizen educates himself and wakes up to the reality of what’s happening, and what’s going to happen to them. Besides, it’s way too late even if they were to wake up. You see, there are way too many people now who have a vested interest in the current system, and they’re not about to relinquish that interest without with serious repercussions. The deadbeat Greeks can serve no better example.

      • Zog says:

        John, I share your despair with our present system of Social Democracy, and agree that it is unlikely that the politians who are able to become elected under this system will effect the substantial policy change required.

        However, is it not overtly cynical to refuse to vote under any circumstances and give our present system a chance? It does seem to me that the Romney / Ryan mix does have the potential to provide a clear alternative to Obama and, whilst the Ryan choice as vice-presidential running mate may not succeed (thus vindicating our joint scepticism), should one not support a clear alternative if it does appear?

  27. Bill says:

    John, not the establishment Republicans but the Tea Party ones. The bigger problem is that the Democratic Party is no longer the party of Truman, JFK, Scoop Jackson, etc., the pro-American, anti-socialist left. It is now controlled by Marxists and radical environmentalists, and this is their religion; they have left their Judeo-Christian religion behind. So it isn’t just a fight where you can argue rationally, as you are challenging their religion. It is going to be ugly. So don’t just sit back and eat popcorn, get to work between now and November 6th to get Obama and his crowd out of office.

    • John Campbell says:

      Bill – I am Canadian so no vote for me. But if I was an American, I would not vote.

      I am convinced that voting will not bring anyone who is much better. As I said, Reagan was a huge disappointment in what he accomplished – the government continued to grow and taxes rose for many. And many people on the left point to Reaganomics as if the United States had tried free market capitalism and it failed. The great numbers of people in the middle – the undecided or non-ideological – may be more likely now to reject true free-market ideas. One could argue that Reagan made things much worse by not following his own rhetoric. Romney is a pragmatic politician who may slow down the growth of government compared to Obama, but he will not make any difference in the long run I believe.

      Obama is a disaster, but Bush was too. All these politicians support a giant government that continues to grow. At one time, I truly thought that there were enough differences in the current political spectrum to make some difference in our progress, but I have lost that hope and see nothing in the current choices to change my opinion.

      It is a tragedy that one of the greatest social experiments in human history – the constitutionally limited government of the United States – has been hijacked by fools and knaves.

      For me the solution is outside the system that is causing it. All conventional thinking stresses the need to vote, no matter what – exercise your democratic franchise it is said. Of course – the state and its supporters are desperate to justify itself. Can you imagine what would happen if voter turnout was 20%? I would love to see that – not that 80% of people are apathetic, but that they do not embrace this system It is bad and getting worse.

      I am passionate about this situation and constantly look for ways to educate and be educated in this. Ultimately it will come down to ideas and not politicians.

      I respect those involved in the political process such as yourself and I share your pain and frustration. I am sure we would not agree on all issues, but fundamentally we are brothers in this. You go your way and I’ll go mine. I hope that we are both successful.

      • Helen7 says:

        I agree. Narcissism is an epidemic amongst politicians today. Our votes only feed their addiction.
        Their delusions of grandeur for the future become more obvious when the people get silent.

  28. Huge Fan says:

    Hey Dev, I thought your post can use a little economic comic relief:

    http://www.youtube.com/watch?v=d0nERTFo-Sk

  29. Dr James Thompson says:

    Dear Detlev,
    As one of the people who asked you what practical advice you could give to individuals, I look forward to your forthcoming post on this issue. In the mean time, a few minor points. All governments are tempted to debase the currency for temporary political advantage. The trick is to find an asset class which is free of govt interference. Even gold purchases and sales can be prohibited.

  30. Harry says:

    Central Bankers deserve creadibility and are not in the pocket of politicians who misuse central banks for political reasons…..

    What if the situation is totally different and if politicians would in fact be in the pocket of central bankers?

    Maybe not the Central bankers persé who are probably just working for Central Banks but for the people who own the Central banks? I don’t know if it is true but i heard stories that most of the 150 or so central banks in the world are owned by ONE AND THE SAME group of private banking families?

    If this is true these families apparently have tremendous money power, and i could imagine that the one who has the power over money easily can have power over how countries and economies are governed, he pulls the strings so to speak.

    So perhaps it is the ones who are behind the central banks who run the show and not the politicians, just a thought, it could explain why the western world is more and more becoming a kind of central run police state akin to the Sovjet Union in it’s heydays, i can imagine if money power controls the governments that they benefit from as much centralisation and mercantilism as possible.

    Probably i am wrong.

  31. Santos Kevorki says:

    I thought you were neoliberal

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>