US Currency Crisis and Gold Standard

In 1971, when I was a young clerk on the floor of the New York Stock Exchange, the United States ran out of money and defaulted on its debts. That's right, the US ran out of money. How?

Well, back then, gold was the money used in transactions between countries. Paper money, like the dollar, was like checks in a checkbook in that it had no value other than it could be exchanged for gold, which was the real money. At the time, the United States was spending a lot more money than it

was earning by writing a lot more of these paper money checks than it had gold in the bank to exchange for them. As people turned these checks into the bank for gold money, the amount of gold in the US started to dwindle. It soon became obvious that the US couldn't keep its promises

for all the existing paper money, so people holding dollars rushed to exchange them before the gold ran out. Recognizing that the US was going to run out of real money, on Sunday evening, August 15th, President Nixon went on television to tell the world that the US was breaking its

promise to let people exchange their dollars for gold. Of course, he didn't say it that way. He said it more diplomatically without making it clear that the United States was defaulting. The strength of a nation's currency is based on the strength of that nation's

economy, and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the

speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the

interest of monetary stability and in the best interest of the United States. I watched in awe, realizing that money as we understood it was ending. What a crisis.

I expected the stock market to plunge the next day, so I got on the exchange floor early to prepare. When the opening bell rang, pandemonium broke out, but not the kind I expected. The market was up, way up,

and went on to rise nearly 25%. That surprised me because I never experienced a currency devaluation before. When I dug into history, I discovered that the exact same thing happened in 1933 and had the exact

same effect. Then, paper dollars were also linked to gold, which the US was running out of because it was spending more paper money checks than it had gold to exchange for them. And President Roosevelt announced on the radio that he

would break the country's promise to exchange dollars for gold. It was then that I issued the proclamation providing for the national bank holiday, and this was the first step in the government's reconstruction of our financial and economic fabric.

The second step, last Thursday, was the legislation promptly and patriotically passed by the Congress, confirming my proclamation and broadening my powers so that it became possible, in view of the requirement of time, to extend the holiday and lift

the ban of that holiday gradually in the days to come. This law also gave authority to develop a program for the rehabilitation of- In both cases, breaking the link to gold allowed the US to continue spending more than it earned simply by

printing more paper dollars. Since there was an increase in the number of dollars without an increase in the country's wealth, the value of each dollar fell