Gold Standard Blame Game

Who’s to blame for the end of the gold standard?

Bullion.Directory precious metals analysis 20 October, 2014
By Terry Kinder
Investor, Technical Analyst

President Lyndon B. Johnson also played a significant role in weakening the role of gold within the monetary system as well as the demonetization of silver. So, who is to blame for the end of the gold standard and the current economic mess the U.S. finds itself in?

Who’s to blame for the end of the gold standard? Should we blame President Nixon, President Johnson, or someone else? Image: Wikipedia

Comparing Nixon and LBJ is a bit like comparing one rotten apple with another rotten apple. They were both bad and both ended up spoiling much of the economic prosperity that the U.S. had experienced after World War II.

Here is a brief rundown on how both LBJ and Nixon dismantled the gold standard and enacted policies that ultimately hurt the American economy:

1. LBJ enacted the signed the Coinage Act of 1965 which superseded the act of 1792. Without going into too much detail, the 1965 act started the U.S. down the path to removing silver from all of our coinage. Interestingly, Johnson claimed that the silver was being removed from coins because demand was more than double silver production. Similar claims about silver production versus consumption are still made today, making one wonder how long can this go on. Johnson’s remarks are also interesting because he stated that silver coins would not become rare and would continue to “…be used side-by-side with our new coins.” This demonstrates that either Johnson was a very silver-tongued (pun intended) liar, or was an economic illiterate.

2. Johnson called on making the U.S. Dollar non-convertible into gold, something Nixon ultimately did. Nixon said the U.S. would “temporarily suspend” convertibility of the dollar, but it turned out to be permanent. Certainly Nixon gave LBJ a run for his money as the “gold standard” of lying presidents.

3. President Johnson repealed the requirement that the dollar be backed with a 25% gold reserve. Without the 25% gold reserve requirement, the U.S. could print a potentially unlimited amount of dollars. This repeal of the gold reserve requirement allowed deficit spending to accelerate with a vengeance.

4. Johnson expanded deficit spending, attempting to provide both guns via the Vietnam War and butter via the “Great Society”. Guns and butter has become the standard today as debt and deficits are used to give the appearance that high levels of government spending can be expanded virtually forever with no consequences.

5. President Nixon “suspended” the convertibility of the dollar into gold and, with a few exceptions, closed the gold window. Nixon’s actions as president effectively ended the gold standard.

6. Nixon imposed wage and price controls as well as a 10% import surcharge. These steps were just two of many economically unsound policies originating from the Nixon White House. Nixon, elected as a “conservative” was certainly not conservative in terms of expanding government spending or the reach of government into our daily lives.

So, as you can see, both LBJ and Nixon contributed significantly to both the ending of the gold standard and other policies which adversely affected the U.S. economy.

Both Johnson and Nixon sent us further down the road to larger and larger deficit spending and higher levels of government debt. Despite the criticism of both Nixon and Johnson today, they were elected by wide margins in 1964 and 1972. Johnson received 61.1% of the vote in 1964 versus Barry Goldwater while Nixon won 60.7% of the vote in 1972 against George McGovern. Who voted for LBJ and Nixon? Well, today it might be difficult to find many people who would admit to voting for either one of them. But, in fact, somebody voted for them to be elected president.

Someone voted for these two presidents who helped end the gold standard, expand the war in Vietnam, removed the constraints on government spending and who lied to the people over and over again. So, while we can debate about the false choice presented by the political parties, the role of money in the political system, or even about fraud in elections, it would be difficult to deny that in 1964 and 1968 the American voters chose Johnson and Nixon, respectively, to be their leaders.

Those elected leaders passed laws and made changes that took us down the road to the demonetization of silver, the end of the gold standard, little to no restraint on government spending, and a seemingly never-ending spiral upward of spending on wars and social programs.

So, who is to blame for the end of the gold standard, is it Nixon, Johnson, or did the voting public, the citizens of the United States, also have a role to play?

Sources: Wikipedia, Moneynews, The American Presidency Project

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