Gold News

Funny Money

A failed experiment goes on...

HERE WE have a story with a cast of thousands – protagonists, antagonists, nihilists and monetarists! With dramatic tension up the wazoo. It's the day Nixon took the Dollar off gold – Aug. 15 1971, writes Bill Bonner, founder of the Daily Reckoning.

Of course, we know exactly where we were and exactly what we were doing on that fateful day. We were watching television...

Richard Nixon, President of All the Americans, had something terribly important to say to his people. But he was worried. He summoned his advisors together and posed the key question to them:

"Should we interrupt Bonanza?"

Bonanza was a very popular TV show, featuring a prosperous rancher, his three sons, and their Chinese cook. Since Bonanza was much more popular than Richard Nixon, the president hesitated to interrupt it...even though he was going to change the entire world's monetary system...and, in fact, institute a bold new system of purely-paper money.

In trials, run over the preceding two thousand years or so, this new system had always failed. But Richard Nixon seemed unaware. In fact, he seemed unaware that he was changing anything important at all...and didn't even mention it to TV viewers that night.

Instead, he directed his attentions to another experiment in central economic planning – another one that also failed every previous test – wage and price controls. Taking a page out of Emperor Diocletian's book on "How to Screw Up an Economy," Nixon announced that henceforth the authorities in Washington would decide how much a man should pay for a loaf of bread or how much his employer should pay him for his labors.

Naturally, this effort was a failure too...and was quickly forgotten. But Nixon's other initiative stuck. The world has suffered from it ever since. We are 4 decades into this latest experiment with paper money – the most successful effort so far; no doubt about it. People still use Dollars with few complaints. Butchers take them in exchange for meat. Prostitutes take them in exchange for services rendered. Politicians take them in exchange for votes.

As far as we know, nobody doesn't want them. As far as we know nobody will not want them tomorrow either.

But wait, while Dollars are universally accepted as a medium of exchange, as a store of value – money's other purpose – green paper has been a flop. It began losing value immediately after the Federal Reserve was set up to protect it. And then, when President Nixon cut the Dollar's last connection to gold, it lost value even faster. Today, a Dollar will buy only about a penny or two as much as a Dollar from 1913.

And people are beginning to wonder. What's wrong with the world's financial system? How come so many economies – the US in particular – are in such a funk? And what or who is to blame? Could Richard Nixon's new 'funny money' have something to do with it?

The answer, of course, is a resounding 'Yes!'

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New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

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