The Collapse of the Bretton Woods System
By 1971 the Bretton Woods system had been completely overwhelmed by the will of the public and the free markets. Gold had once again forced the government’s hand and, on 15 August 1971, President Richard Nixon was forced to close the gold window. The U.S. dollar was no longer convertible to gold and all currencies became free-floating. For the first time in U.S. history, the currency supply was entirely fiat. And since the Bretton Wood system had pegged all the world’s currencies to gold through the dollar, all currencies on the planet became fiat currencies simultaneously. This was tantamount to the U.S. declaring bankruptcy. Gold had won this match and it was now free to set its own value on the open market.
At this point, most countries and central banks were now on a dollar standard and were using dollars for international trade instead of gold. So with the end of the Bretton Woods system in 1971, the dollar was freed from the fiscal constraints, allowing the U.S. to print as much paper “gold” as it wanted. A power it still holds today.
No other country has this hidden advantage and now U.S. politicians seem to consider it their birthright. This advantage gives the U.S. the ability to run budget, trade and other deficits and imbalances far in excess of anything the world has ever seen.
It also gives the U.S. the ability to tax not only its own population but also the population of the entire world through the inflation caused by its deficit spending. Inflation of a currency supply respects no borders.
Therefore every new dollar that is printed, devalues all other dollars everywhere in the world.
Yes, the dollar was free from the fiscal constraints of gold, but gold was also freed from the dollar. On 15 August 1971, gold became its own free-floating international money, no longer bound to any country.
From the book: “Guide to Investing in Gold and Silver” by Michael Maloney
