'There Is No Cure for this Disease...'

by Hugo Salinas Price, Plata:

In 1934, through the Gold Reserve Act, President Roosevelt devalued the dollar from $20.67 dollars per ounce, to $35 dollars per ounce.

The devaluation was excessive, meaning that at $35 dollars per ounce, the world considered that it would rather own American dollars - as undervalued - rather than gold; for this reason, and because of fears regarding another World War, the world shipped enormous quantities of gold to the US, in exchange for US dollars.

The consequence was that the stash of American gold, at the end of WW II, was about 22,000 tons of gold.

The huge error which the American administration committed at the Bretton Woods, N.H., international monetary conference in 1944, where the monetary order of the post-war world was determined, was to force upon the world a defective monetary system: gold was to be the foundation of the post-war world economy, supported by the US dollar, which was to be considered - like it or not - as good as gold.

This huge mistake has brought the US and the world to an enormous economic distortion: all production in all countries of the world, today, and all economic relations, both internally within nations and with regard to their international relations, are disconnected from reality.

After the war, the US continued the policy to which it was and is addicted: credit expansion. Consequently, the undervaluation of the dollar in 1934, turned into an overvaluation of the dollar, and US gold began to be purchased by the rest of the world at what was regarded as an increasingly attractive price of $35 dollars per ounce. Accordingly, the US stock of gold began to contract as gold left the country.

In 1955, when I was 23 years old, and returning from a trip to Europe with my bride on the Italian passenger liner, the "Andrea Doria", I recall after-dinner conversations with elderly gentlemen in the lounge, and the subject of the conversations was the persistent loss of gold on the part of the US.

In the post-war period, as a result of the Bretton Woods Agreements of 1944, the rest of the world accumulated dollar reserves - "as good as gold" - and this helped mask the consequences of the constant US credit expansion. However, there was a fly in the ointment: the perceptive Jacques Rueff, Economics Minister of General Charles de Gaulle, President of France, alerted de Gaulle to the fact that the US was both expanding internal US credit, and external credit by sending US dollars to France in payment for French imports to the US: French acceptance of dollars as payment, was actually credit extended to the US, and according to Rueff, this was unwise.

General de Gaulle thereupon insisted on returning the dollars held by the Bank of France to the US, and demanding in return, the gold to which it had a right. In May of 1968, Paris was shaken by very severe Leftist rioting and President de Gaulle was very nearly deposed. Obviously, the US had not been pleased with General de Gaulle's attitude.

Nevertheless, the outflow of gold from Fort Knox to the rest of the world continued unabated. The cheap dollar purchased a lot of gold, at $35 dollars an ounce.

As we all know, Fort Knox continued to bleed gold until August 15, 1971 when the gold stock having reached some 8,000 tons, President Nixon "temporarily" closed the gold window. The "as good as gold" part of the Bretton Woods Agreements of 1944 had ended. The irredeemable US dollar - a figment of the imagination - was now the basis of the world's economy.

World trade did not stop in its tracks. The world continued to revolve around its own axis in 24 hours a day, and the nations of the world went on using the irredeemable dollar as the foundation of their national economies and their banking systems.

Gold reserves ceased to have any importance for finance ministers around the world. Gold became the "barbarous relic" of J. M. Keynes. Having dollars now became the paramount objective of finance ministers and Central Bank chiefs.

The question for the rest of the world was no longer "We cannot allow excessive credit expansion, because we have to protect our gold reserves." After August 15, 1971, the new question was: "We must export more than we import, in order to have growing reserves of US dollars; because if we have more dollars, we can also expand credit - like the US - and grow our economies." If the rest of the world wanted more dollars in order to "grow their economies", there was, in the last resort, only one country that provided the necessary dollars: the US.

Consequently, the rest of the world went to work to sell whatever it could, to the US, and receive dollars in payment. National prosperity for the rest of the world required a flourishing export market in the US. Those who had nothing to sell to the US were out of luck. Those selling lots of stuff to the US, enjoyed prosperity.

What was the key to selling to the US, for the all-important dollars received in return?

The key, for all countries, was to undersell the local US producers of whatever the rest of the world had for sale. There was no other way to obtain dollars.

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