Notes From Underground: 40 YEARS AGO TODAY NIXON CLOSED THE GOLD WINDOW BUT OPENED UP THE FIAT MONEY GUSHER

Yes, 40 years ago that miscreant Machiavellian, Richard Nixon, took the U.S. off the GOLD EXCHANGE STANDARD and later in the year supposedly proclaimed that we are “ALL KEYNESIANS NOW.” Nixon learned that a fiat-based currency with a compliant CENTRAL BANK can create enough liquidity to promote short-term economic growth. The supposed conservative PRESIDENT forgot the element of Keynes that proscribed acting in an anti-cyclical fashion by running budget surpluses during economic growth times. Once Nixon could pressure Arthur Burns to roll the presses, getting CONGRESS to deficit spend for any purpose was an easy task.

Mr. Nixon, your desire for political success has burdened this country with massive deficits for Nixon Keynesian economics meant that a powerful sovereign has unlimited access to money through fiscal policy. Social programs, no problems. Military spending for Kissingerian Imperial Fantasies, no problem. Keynesianism devoid of responsibility is madness. Nixon’s desire for the political expediency towards re-election is the playbook for all of Washington. A profligate EXECUTIVE and LEGISLATIVE BRANCH with no controls has led this country into its present problems.

Tomorrow is the day that will set the tone for Europe. Sarkozy and Merkel are to meet and discuss–not sure what–but expectations are high about some major agreement about an enhanced effort to bring some stability to a very fragile EUROPEAN FINANCIAL environment. It was announced today that the ECB/EFSF last week bought 22 BILLION EUROS in sovereign bonds vs. an estimated 15 BILLION EUROS. It makes perfect sense as 10-year Spanish and Italian NOTES dropped from yielding over 6% to less than 5% today. Many shorts were eliminated and with the BAN on short selling of bank stocks one has to wonder how buyers of sovereign debt are going to hedge their exposure. If we get a buyer revolt the markets will exert a great deal of pressure on the ECB to fill the void as a buyer of last resort.

Merkel and Sarkozy had better come to terms on something for the markets are certain to challenge whatever decision is made. Remember, financial markets are like water for they will seek the lowest level and weakest point of resistance. I am not sure what time we will hear from the DYNAMIC DUO but as today’s trading indicates the markets are hoping for something very positive. The GOLD was the only piece of the puzzle that didn’t fit in today’s market action. With the SWISS FRANC causing so much agita, GOLD was deemed to be the best insurance against any misstep by major players in Europe. Will it be EUROBONDS or a major increase in the capacity of the EFSF? Not even the shadow banking world knows.

I was remiss in not discussing last monday’s Financial Times article written by a very qualified EUROPEAN, Otmar Issing, former ECB executive board member and a very powerful man in European banking. The article’s title speaks for itself: “Slithering to the Wrong Kind of Union.” Readers of NOTES will not be surprised by the conclusions drawn by Herr Issing.

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3 Responses to “Notes From Underground: 40 YEARS AGO TODAY NIXON CLOSED THE GOLD WINDOW BUT OPENED UP THE FIAT MONEY GUSHER”

  1. Joe Says:

    ” Keynesianism” /monetarism “devoid of responsibility is madness.”

    “Nixon’s desire for the political expediency towards re-election is the playbook for all of Washington. A profligate EXECUTIVE and LEGISLATIVE BRANCH with no controls has led this country into its present problems.”

    In the latter days of his administration, pushing a 10% increase in income taxes in ’68 to shore up the treasury to pay for his guns and butter legacy, Johnson believed his biggest enemy was not in Hanoi or Yorba Linda, Calif. It was Fed chairman Wm. McChesney Martin. He would not “cooperate.” I’ll bet before he died, Johnson wondered where was Arthur Burns when HE needed him.

    • rohrintl Says:

      Hi Joe-
      Yra has the drivers pegged (as usual.) There was a highly informed, witty guest on the mid-’60s late night (controversial and often iconoclastic) Les Crane Show whose perception of the combined impact of the two influences Yra notes was, “America has become a Disneyland for dummies.” …and it indeed keeps on giving.

      Unfortunately, as it was not deemed ‘important’ enough prior to the age of transposing to video or digital storage, almost all of the old kinescopes from that program were destroyed. Or maybe the powers-that-be DID realize how important they were!

  2. yra Says:

    Burns had a good reputation until Nixon put him in his pocket.The bottom line becomes that the Vietnam War via the Great Society did more harm to America then anything else—it is the Fiasco that keeps on giving

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