This month marks 55 years since President Richard Nixon closed the “gold window,” severing the last link between the US dollar and gold. Under the 1944 Bretton Woods agreement, foreign countries pegged their currencies to the US dollar, which was then pegged to a fixed value of gold. Foreign countries could exchange their dollars for gold at a rate of 35 dollars per ounce.
In the late 1960s, concerns about the dollar’s stability increased because of President Lyndon Johnson’s spending on the war in Vietnam and “the Great Society.” This spending, which continued under President Nixon, was responded to by an increase in foreign countries converting their dollars into gold. Concerns that the US gold reserve was being drained led President Nixon to close the gold window.
Closing the gold window left the US with a pure fiat currency. The results have been disastrous.
The dollar has lost over 97 percent of its purchasing power since the Federal Reserve was created in 1913, with most of the dollar’s decline occurring since 1971. Fiat money is the real cause of the affordability crisis.
Fiat money encouraged the growth of federal spending. By severing the last link between the dollar and gold, President Nixon enabled the Fed to monetize an ever increasing amount of federal debt. The federal debt was around 400 billion dollars when President Nixon closed the gold window. Just ten years later, the federal debt reached a trillion dollars. Today, the federal debt exceeds 39 trillion dollars and increases by a trillion dollars every three to five months.
The expanding national debt puts pressure on the Fed to keep interest rates low. This is because a small increase in the national debt substantially raises the government’s debt payments.
The average American’s paycheck is not keeping up with inflation. The American people’s eroding standard of living is making them wary of Republicans like Resident Trump who claim the solution to the people’s economic problems includes big economic interventions including tariffs, more spending, and government “investment” in private business. Some Americans are finding appeal in self-described democratic socialists who promise to solve problems with more government spending.
Of course, expanding government, whether done by Republicans or Democrats, will only make the economic problems worse by increasing government debt. The increased debt will increase the pressure on the Federal Reserve to monetize the debt, further eroding the dollar’s purchasing power and lowering the people’s standard of living. Eventually, the dollar’s erosion will lead to a major economic crisis, likely involving a rejection of the dollar’s world reserve currency status.
The closing of the gold window inspired me to run for Congress and increase my involvement in educational and advocacy organizations. In 2021, my Institute for Peace and Prosperity sponsored a conference concerning the fiftieth anniversary of Nixon closing the gold window. Those interested in attending future conferences should go to the Ron Paul Institute website for information about our upcoming DC conference on Labor Day weekend.
