Yesterday was the 50th anniversary of President Nixon taking the US dollar off the gold standard. While you may be familiar with the basics, there is quite a bit to unpack from that historic moment.
First, let’s take a look at what Nixon’s exact comments were when he decided to execute this idea.
You can read more of the speech here:
The language used here was important. There was reference to the American economy being the strongest in the world, the importance of defending the US dollar against speculators, the promise of temporary action, and of course - the confirmation that the US dollar would be stable and immune from being devalued.
Cute idea, but historically this has been proven to be one of the worst policy decisions in history. Don’t believe me? Our friends over at River have collected a few charts to highlight the impact:
Just incredible to see the impact of the United States going off the gold standard. Remember, President Nixon said that “inflation robs every American, every one of you.” That is correct. But while he was referring to pre-1971 conditions, he should have foreseen how destructive his decision would be.
It is interesting to look back on the 50 year anniversary and realize that we currently are experiencing 5.4% CPI and 4.3% core inflation numbers. These are basically the highest they have been in decades.
There are currently 78% of Americans who live paycheck-to-paycheck and 45% of Americans who hold no investable assets. These are the people who have suffered at the hands of poor policy decisions. While disheartening, the free market appears to have created a brand new global competitor — bitcoin.
There is no need to replace the US dollar in the short term, so bitcoin is likely to serve as the global store of value for decades to come. The transparent, programmatic monetary policy of a digital currency that has decentralized infrastructure is too powerful an idea, especially when compared to the backdrop of continued insane monetary and fiscal policy decisions. The legacy organizations are doing just as much to market an alternative store of value as any bitcoiner could dream of.
As Niall Ferguson wrote in a Bloomberg Opinion piece this morning, “If we have learned nothing else from the past half-century, it is surely that the best way to win a race with totalitarian rivals is not to copy them, but to out-innovate them. Make the wrong decision at this historic turning point, and we shall be interrupting a much bigger bonanza than Nixon did.”
If you have any material amount of wealth, you are not able to preserve it by holding US dollars, bonds, or gold. All are producing negative real rates of return. You essentially are left with bitcoin or equities, which leads you to consider an allocation to bitcoin given the high degree of volatility that will likely serve to outperform equities over a long enough time period.
We are living in weird, weird times. President Nixon kicked off the fiat experiment in 1971 and 50 years later, we are watching the global adoption of a potential solution to that problem. There is still a lot of work to do. Plenty more people to educate around the structural disadvantage they have as they pursue financial security in the legacy system. But….slowly we continue to head in the right direction.
Stay alert out there. Make sure you are educating yourself as best you can. The uncertainty and chaos of markets can be calmed by further understanding of history. Hope your week is off to a great start. I’ll talk to everyone tomorrow.
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