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The Economic Debt Driven Crisis started 41 years ago yesterday

Tom Winnifrith
Thursday 16 August 2012

It was 41 years ago yesterday that President Nixon scrapped the Bretton Woods system. Until then you could exchange 35 US dollars for an ounce of gold. The US could only print as many dollars as it had gold reserves and all other currencies were linked to the US dollar, so they too were restricted in what they could print by how much gold they sat on. As a result we enjoyed fiscally responsible Governments that did not spend more than they could afford.

Nixon scrapped the link because the US Government needed to print dollars to finance the folly that was the Vietnam War. Since he did that the purchasing power of the US dollar has fallen by 82%. The purchasing power of other currencies where the Governments have been even more profligate (er…the UK) has fallen by more.

The current system allows Government to spend more than it can afford on welfare systems/wars which are unsustainable. It funds this with debt and that in turn is paid for by issuing more debt. And this laxity of monetary policy feeds through to the private sector. Since we know that the real value of a paper currency (any paper currency) will erode massively over time we all take on debt and more debt. It is, of course, unsustainable. Eventually ( as incidentally happened with the Roman empire as it used less and less silver in its coinage so that it could mint more and more of them to pay for “panes, circenses at bella” ) folks lose faith in paper currencies.

I see that Bristol City Council has just launched a Bristol pound. Its staff can get partly paid in these new pounds and certain (daft) local businesses will accept them. This is seen by some as a sign of how people are losing faith in traditional fiat currencies. It is nothing of the sort. The Bristol pound is just another fiat currency, backed by no gold, silver or even a share of the Clifton suspension bridge. It is only worth anything if folks believe it is worth anything which, of course, it is not. It is just a glorified and costly luncheon voucher scheme. If anything it is a sign of the profligacy of the modern state that a City Council can waste so much cash (which I thought it did not have thanks to those wicked Tory spending cuts?) on implementing and promoting such folly.

At some stage the Modern state – across the West will have to accept reality. You cannot live on the never never forever because at some stage folks will not believe that you are good for your money and your fiat currency will collapse ( as if 82% in 41 years is not already a collapse) in value. Ron Paul understands this. I am sure you understand this. That is why he and you have invested in gold or gold related assets. One day our leaders will have to understand it too.

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About Tom Winnifrith
Tom Winnifrith is the editor of When he is not harvesting olives in Greece, he is (planning to) raise goats in Wales.
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